Open Letter to George Freeman MP – Conservative

Hi Mark.
Got to go out I'm afraid. I just tried to open a new browser and couldn't find the survey on their site (they should do something about that) and also tried going back in to my emails and going back a page - but it wouldn't let me). If anyone else reading this has a few minutes and is better at this than me, maybe they can try and get the link this morning? Otherwise, I'll try again later when I'm back home. All the best.
Ros

Dear .....

The knock on effects of altering the way taxable profits are calculated for buy-to-let landlords have far reaching effects. For example, how will the CSA view the apparent jump in taxable profits?

New housing development is also likely to slow down.

The Institute for Fiscal Studies said "The Budget red book states that this means that “the current tax system supports landlords over and above ordinary homeowners” and that it “puts investing in a rental property at an advantage”. This line of argument is plain wrong. Rental property is taxed more heavily than owner occupied property. There is a big problem in the property market making it difficult for young people to buy, and pushing up rents. The problem is a lack of supply. This change will not solve that problem"

Over the last two decades the development of new housing stock has been heavily supported through buy-to-let landlord purchases. Disincentivising buy-to-let investment will have a knock on effect to the development of social and low cost housing, which runs in tandem with most new developments.

Given that so many buy-to-let landlords will end up paying more tax than they are making in profit and that CGT is likely to render them insolvent if they sell up; how will this impact the banks balance sheets? At the moment the arrears book on BTL lending is comparatively strong against other forms of secured debt such as homeowner mortgages. The new taxation policy is likely to have a significant negative impact on this. The makings of a new banking crisis perhaps?

How can any of this assist the economy or the growing housing crisis?

Yours ....
.

Reply to the comment left by "Ros ." at "16/07/2015 - 09:45":

I'm not an RLA member so only have access to their general public site but found this: http://news.rla.org.uk/landlords-give-thumbs-down-to-budget/?zoom_highlight=budget+survey

Thanks Mandy. That wasn't the same survey though. I have finally sorted the link and it is as follows:

https://www.surveymonkey.com/r/2DMVT5Q

Reply to the comment left by "Mandy Thomson" at "16/07/2015 - 10:27":

I have just completed the survey.

Pity they didn't ask whether landlords let fully furnhed or not because the results will be skewed by landlords like me who rent unfurnished and will answer no to questions where I suspect they want a yes, and vice versa.

I will post the link on the related threads.
.

Hopefully some more landlords here will also complete it. Obviously the bigger the sample the stronger the case the RLA will have with their lobbying.
In terms of it maybe not being perfect, I think the main thing is for us to try all different kinds of tactics - because it could be one particular thing we do, letter we write, petition we organise etc. that hits the spot.

Superb comment just posted on this Facebook page >>> https://www.facebook.com/groups/UKProperryTraders/1638219063089696/?notif_t=group_comment_reply

"To enhance the point, it is a situation that in all areas of business, the initial business risk is calculated based upon the rules in place at the time.

Such retrospective, game changing laws will erode the confidence of all businesses in UK and be very damaging to the effort to promote enterprise in UK."
.

Okay, here goes. I want to get my letter off to George Osborne this evening. I just incorporated Mark's last extract as it is very good. Can anyone tell me if they think I have made a real boo-boo in any of the following (I don't expect everyone to agree with what I've written):

Dear Mr Osborne
I am writing with regard to the proposals on 'tax relief' for landlords in the Budget. Many of us have been confused about this terminology. As the mist has cleared, we realise that what is really being proposed is that the cost of raising interest, through BTL mortgages, which is our biggest cost in running our businesses, has been re-defined as 'income.'

It is the case that in all areas of business, the initial business risk is calculated based upon the rules in place at the time. Everybody expects the rules to change in time, but not to be retrospectively applied, as is proposed in this instance. It is fundamental that business decisions can be made in a climate of stability, where businesses trust the government to honour the rationale of decision making to carry on business in their chosen field. The trust lost by the government as a result of these changes will not be limited to the sector, but will reverberate across all business sectors. Indeed, such retrospective, game changing laws will erode the confidence of all businesses in the UK and be very damaging to the effort to promote enterprise in the UK.
For us as landlords, we are now wondering, what will be next?

The proposal means that we would be taxed on a cost; whereas we should only be taxed on actual income; this is why it is called 'income tax'. Is it the case, that a new principle of taxation is being introduced in Great Britain? Namely, that tax can now be levied on costs?
As one of the 1.5 million landlords in the UK, I pay out considerable amounts of money each year, replacing kitchens, bathrooms, boilers, re-painting houses, fixing and replacing roofs and so on.
Following the logic of the new proposal, any or all of the costs of running this business could be re-defined as 'income.' Why just mortgage interest? And if our costs can be re-defined in this way, why aren't all businesses in the UK falling under this new (and incredible) tax regime? In fact, Buy-to-let is not a simple, hands-off 'investment', as it is often portrayed; it is very labour-intensive and for many of us constitutes a full-time job, whereby we work and are on call 7 days a week, including evenings. If a limited company or Housing Association provides an identical service they are deemed to be conducting a business and they can claim their interest payments as an allowable expense in their tax return, it makes no sense that it is proposed we shall not be able to.

To illustrate with a simple example.
SCENARIO AS OF TODAY
Rental income: £300,000 per annum
Mortgage interest: £200,000
Other legitimate expenses: £100,000 (e.g. insurance, letting, management, maintenance etc.)
Taxable income = zero.

SAME SCENARIO AS OF 2020
Rental income: £300,000 per annum
Legitimate expenses excluding interest: £100,000
Net taxable income = £200,000

Net cashflow would still be zero but tax would be payable on £200,000. Given that we have made zero profit, where are we expected to find the money to pay the extra tax from? And the position worsens when interest rates increase, as we are deemed to be 'earning' more. As landlords, we have been dumbfounded, trying to comprehend and absorb the enormity of this shocking news. We are starting to find our voices however and we aim to fight this.

What's more, even if landlords did have the funds to indefinitely prop up our businesses in this way, why should we? As Housing Associations, 'limited companies' and all other businesses are receiving favourable treatment and are excluded from this measure, where is the 'level playing field?' We're all providing the same service.
To conclude, this measure, if implemented in its current guise, will be extremely injurious to a large business sector which provides an essential service to millions of renters and which also provides work for a massive amount of tradespeople, insurance brokers, letting agents, estate agents and so on.
It could also have a cataclysmic effect on house prices as landlords will not be able to indefinitely pay out the enormous amounts demanded under the new regime. The Treasury will also not gain as much as it might be expecting as many of us will go bankrupt and I wonder what this will do to our lenders' balance books.
It would appear that the measure has been introduced in an attempt to provide a 'level playing field' between owner-occupiers and landlords. This is a false dichotomy, as most landlords are both and, at the risk of repeating myself, buy-to-let is a business which provides a service; it's not a personal pastime. To compare us to first time buyers for example is to use the wrong comparator. The right comparator is other businesses.
If indeed you want to level the playing field, what about introducing 'tax relief' for first time buyers?
Even the IFS has thoroughly condemned this proposal and said it will not work and that the only solution to any 'housing crisis' is to build more houses. Scapegoating landlords is not a solution; it will create a bigger problem.
One can only assume that this singling-out of landlords as a special category whose interests can be so unfairly attacked stems from an anti-landlord prejudice, based on outdated and offensive ideas about us as business people.
So I am urging you to reconsider this draconian and retrogressive move, which frankly, we never expected a Conservative Government to even countenance, never mind seriously propose.
I look forward to a positive reply indicating that this measure is being reconsidered and preferably revoked.
Yours sincerely

Reply to the comment left by "Ros ." at "16/07/2015 - 17:09":

SUGGESTED AMEMDMENTS....

Dear Mr Osborne

I am writing with regard to the proposals on ‘tax relief’ for landlords in the Budget. Many of us have been confused about this terminology. As the mist has cleared, we realise that what is really being proposed is that the cost of BTL mortgage interest, which is our biggest cost in running our businesses, has been re-defined as ‘income.’

It is the case that in all areas of business, the initial business risk is calculated based upon the rules in place at the time. Everybody expects the rules to change in time, but not to be retrospectively applied, as is proposed in this instance. It is fundamental that business decisions can be made in a climate of stability, where businesses trust the government to honour the rationale of decision making to carry on business in their chosen field. The trust lost by the government as a result of these changes will not be limited to the sector, but will reverberate across all business sectors. Indeed, such retrospective, game changing laws will erode the confidence of all businesses in the UK and be very damaging to the effort to promote enterprise in the UK.

For us as landlords, we are now wondering, what will be next?

The proposal means that we would be taxed on a fictitious amount; whereas we should only be taxed on profit; this is why it is called ‘income tax’. Is it the case that a new principle of taxation is being introduced in Great Britain?

As one of the 1.5 million landlords in the UK, I pay out considerable amounts of money each year, replacing kitchens, bathrooms, boilers, re-painting houses, fixing and replacing roofs and so on. Following the logic of the new proposal, any or all of the costs of running this business could be re-defined as ‘income.’ why just mortgage interest? And if our costs can be re-defined in this way, why aren’t all businesses in the UK falling under this new (and incredible) tax regime? In fact, Buy-to-let is not the simple, hands-off ‘investment’, as it is often portrayed; it is very labour-intensive and for many of us constitutes a full-time job, whereby we work and are on call 7 days a week, including evenings. If a limited company or Housing Association provides an identical service they are deemed to be conducting a business and they can claim their interest payments as an allowable expense in their tax return, it makes no sense that it is proposed we shall not be able to.

To illustrate with a simple example.

SCENARIO AS OF TODAY

Rental income: £300,000 per annum
Mortgage interest: £200,000
Other legitimate expenses: £100,000 (e.g. insurance, letting, management, maintenance etc.)
Taxable income = zero.

SAME SCENARIO AS OF 2020

Rental income: £300,000 per annum
Legitimate expenses excluding interest: £100,000
Net taxable income = £200,000

Net cashflow would still be zero but tax would be payable on £200,000. Given that we have made zero profit, where are we expected to find the money to pay the extra tax from? And the position worsens when interest rates increase, as we are deemed to be ‘earning’ more. As landlords, we have been dumbfounded, trying to comprehend and absorb the enormity of this shocking news. We are starting to find our voices however and we aim to fight this.

What’s more, even if landlords did have the funds to indefinitely prop up our businesses in this way, why should we? As Housing Associations, ‘limited companies’ and all other businesses are receiving favourable treatment and are excluded from this measure, where is the ‘level playing field?’ We’re all providing the same service.

The Budget proposals, if implemented in there current guise, will be extremely injurious to a large business sector which provides an essential service to millions of renters and which also provides work for a massive amount of tradespeople, insurance brokers, letting agents, estate agents and so on.

It could also have a cataclysmic effect on house prices as landlords will not be able to indefinitely pay out the enormous amounts demanded under the new regime. The Treasury will also not gain as much as it might be expecting as many of us will go bankrupt and I wonder what this will do to our lenders’ balance books.

It would appear that the measures have been introduced in an attempt to provide a ‘level playing field’ between owner-occupiers and landlords. This is a false dichotomy, as most landlords are both and, at the risk of repeating myself, buy-to-let is a business which provides a service; it’s not a personal pastime. To compare us to first time buyers for example is to use the wrong comparator. If indeed you want to level the playing field, why not remove CGT for BTL landlords or at the very least introduce rollover relief as is available to other businesses and investments? Many landlords cannot sell or roll their investments into a company, they are trapped due to CGT liabilities whilst others are still suffering from property prices which are still yet to recover, meaning they cannot refinance either.

Even the IFS has rubbished your reasoning for the tax changes and said the only solution to any ‘housing crisis’ is to build more houses.

Scapegoating landlords for the housing crisis is not a solution; it will create a bigger problem. Without landlords, not only would there be extra property, there would probably be less because landlords have shown an appetite for new build and the developers that have fulfilled that demand have been compelled to build low costs and social housing at the same time.

One can only assume that this singling-out of landlords as a special category, whose interests can be so unfairly attacked, stems from an anti-landlord prejudice based on outdated and offensive ideas.

I am urging you to reconsider this draconian and retrogressive move, which frankly, we never expected a Conservative Government to even countenance, never mind seriously propose.

I look forward to a positive reply indicating that this measure is being reconsidered and preferably revoked.

Yours sincerely
.

Hi Mark.
Yes, I like the word 'fictitious' and the bit about property developing. I still want to put in the bit about first time buyers having tax relief though, and there's one tiny grammatical error I spotted in the amended version:
It should read: 'The budget proposals.... their current guise.'
Thanks for the imput and I'll get this off asap. As we have both said, it is best that others adapt these letters using some of their own words and preferences if they are to have a better impact.
Thanks again.