Open Letter To The New Chancellor – @PHammondMP

by Gareth Wilson

15:37 PM, 21st July 2016
About 2 years ago

Open Letter To The New Chancellor – @PHammondMP

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Open Letter To The New Chancellor – @PHammondMP

Dear Mr Hammond, Open Letter To The New Chancellor - @PHammondMP

Upon her welcome ascension to the role of Prime Minister, Mrs May verbally committed the Government to act on behalf of the striving workers of Britain, rather than exclusively for the benefit of those at the top of society. It is therefore in this light, that I feel I must bring the following matter to your attention.

I am one of the many private landlords operating outside of the property hotspot of London. Throughout most of the country outside London rents have remained static, rising nationally at a rate lower than overall inflation. However, the trend with myself and among landlords that I know has been to charge the same rents year-on-year; the aims of this being to cover mortgage outgoings and other costs while insulating our tenants from disruption and hardship. In other words, just to let things “tick over”. It was for this purpose last summer that I re-mortgaged all of my properties: to prevent my rents from increasing (rents paid by hardworking strivers) I re-mortgaged to stop my mortgage outgoings from doing likewise.

Unfortunately, thanks to your predecessor George Osborne pulling the rug out from beneath myself and other formerly Conservative voting landlords (and by definition also our tenants), this effort appears to have been for nothing. Section 24 of the Finance Act 2015/16 will, with each year that passes until 2021, remove our ability to offset mortgage outgoings (our main cost) against tax. The affect of this will be to repeatedly and significantly rachet-up the amount of tax that we pay by reclassifying increasing proportions of a genuine business expense as fictitious profit. This is an utterly unprecedented and frankly dishonest method of increasing tax revenue. It is one of the policies, pushed through without proper consultation by the Treasury and absent from the Party’s manifesto, which caused George Osborne’s reputation among the Party’s grassroots to bomb through the floor and for his departure from the role of Chancellor to be greeted among them with such glee.

Within a year of the Conservatives’ election victory, Treasury policy has been pushing significant numbers of people to have voted Conservative not to do so again. This year’s local elections were the first time in my life that I chose not to vote Conservative: such was my discontent with George Osborne’s activity and the prospect of him potentially leading the Party in future. Every landlord that I know, who was aware of Section 24, also did the same. Through this policy, Mr Osborne also enlarged his reputation for granting favours to corporate vested interests: the reality of Section 24 is that contrary to previous official spin, the wealthiest cash-buying and corporate landlords (many of whom are prominent Conservative party donors) are completely protected from its implications. When subsequently, during his Autumn statement, the then Chancellor quite cockily responded to criticism of this unfairness with a targeted stamp duty hike upon smaller rental providers, he’d truly passed the point of no return… demonstrating the same punitive impulse as which would later drive his ill-famed “Punishment Budget”.

Of far greater importance however are the implications of Section 24 upon the hardworking strivers who Mrs May has pledged to stand up for. Because the projected higher tax bills calculated from fictitious profit will in many cases exceed today’s rents once added to mortgage outgoings, many landlords have no choice but to increase rents. Indeed, those aware of Section 24 have already begun to do so. This is why Section 24 has been dubbed “The Tenant Tax”. Thanks to your predecessor, the country is beginning to experience entirely tax-driven rent increases. This is bad for working Britons and their corresponding ability to save up a deposit of their own. Furthermore, as the minimum rents landlords need to charge rise, in order to cover their outgoings and inflated tax-liability, their ability to let to the poorest and most vulnerable members of society will decrease: particularly so following recent restrictions to housing benefit. Already stretched local councils and housing associations will therefore pay a heavy price for this past year of short-termist landlord-bashing. Those landlords resultingly unable to obtain rents high enough to cover their costs will in turn be forced to evict their tenants and sell with vacant possession, reducing the overall supply of rental accommodation, placing further upward price pressure upon the rental sector in the long-term, and damaging labour mobility within the country at large.

The state will also face further financial costs of its own, namely the cost of investigating the growing number of landlords driven not to declare rental income in order to keep their rental businesses viable, and the cost of defending Section 24 in Court during the upcoming Judicial Review of the measure.

In short – irrespective of Brexit, Mrs May becoming Prime Minister, and George Osborne’s departure – if the Treasury does not reverse the recent legacy of your predecessor and dustbin the impending cock-up that is Section 24 of The Finance act 2015 (“restrictions on finance cost relief for individual landlords”), the situation for both hardworking strivers and the reputation of the Parliamentary party among grassroots Conservatives will continue to deteriorate.

Thank you for your attention with this matter.

Yours sincerely,

Gareth Wilson

EDITORS NOTES

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Comments

NW Landlord

9:21 AM, 22nd July 2016
About 2 years ago

Great letter

We need to lobby him direct through the various action groups as the problem we will have is its at the bottom of the pile in priorities. I do believe it will take time for it to bite before action is taken so all landlords need to plan accordingly Ie incorporation etc

Dr Monty Drawbridge

12:20 PM, 22nd July 2016
About 2 years ago

Unfortunate that this begins by differentiating London landlords from others, possibly allowing it to be inferred that the tax may be justified in London but is having adverse effects elsewhere. London rental returns on investment are amongst (if not actually) the lowest in the UK and London landlords are consequently disproportionately adversely affected by clause 24. If we want MPs to understand then we should be careful not to muddy the issue. We should try a little harder speak with one voice.

Christine Reynolds

12:54 PM, 22nd July 2016
About 2 years ago

I may be being very stupid but I can't see why landlords should have tax relief on interest when buying Buy-To-Lets when people buying for their own residence no longer have this tax relief perk. Doesn't this mean that home buying is being squeezed out as it's more advantageous financially to buy Buy-To-Lets and is this fair?

Dr Monty Drawbridge

13:51 PM, 22nd July 2016
About 2 years ago

Hi Christine,

It is the difference between owning something for your own personal use and owning something for a business - very different purposes (whether it is residential property or anything else). Businesses (incorporated or not) are all set up to make a profit from providing a service. That's pretty much the only reason they exist.

If you bought a car for your own use with a loan, the interest on that loan would not be deductible from your taxable income. Neither would any of your car's maintenance costs.

But if you used the loan to buy a car which you then hired to people (a car hire business), you would be taxed on the profit you made doing so. And in calculating the profit you made you would take the amount of income you received in hire charges and deduct the cost of the loan you needed to buy the car (as well as maintenance costs, etc).

This would be the same for pretty much anything else that you purchased. Other than residential property.

If your argument is simply that business and private ownership should treated exactly the same for tax purposes (and I don't see any obvious examples of this principle elsewhere in taxation) it would follow that landlords should pay not capital gains on the increase in value of the property over time - just to be like owner occupiers. Or indeed owner occupiers would need to pay 28% tax on their profit when they sold up just to be like landlords.

Mandy Thomson

15:17 PM, 22nd July 2016
About 2 years ago

Reply to the comment left by "Dr Monty Drawbridge " at "22/07/2016 - 13:51":

I made this argument to someone on Twitter the other day. The response I got was "BTL isn't a business". Well, to anyone who says it is not I would say it is for the following reasons:

- the responsibility (compared to the upkeep of your own home) is far greater - not just in the legal sense, though landlords have much more legislation to comply with than owner occupiers, but in the MORAL sense - no decent person feels comfortable taking rent money for accommodation that isn't up to standard, and the "accidental" landlords who think they CAN cut corners often learn the VERY HARD way that they can't. As a landlord, I have had sleepless nights worrying about ongoing maintenance issues, that would just be an irritation if I was an owner occupier.

- the work: I recently had to undertake an end of tenancy refurbishment and find new tenants. I could only afford to pay professionals to do some of the jobs, the rest I did myself. I spent several weeks skimming, painting & tiling. I then used OpenRent to advertise and found and referenced my own tenant, ensuring that all the legalities were complied with. In short, I had be a handyman, removal man, letting agent, referencing clerk, inventory clerk, PAT tester, cleaner, and finally, a landlord. Larger landlords pay others for these jobs through their rental profits, but even so, they still have the expense and the buck still stops with them - either way, it is work related to a business.

Christine Reynolds

18:00 PM, 22nd July 2016
About 2 years ago

Reply to the comment left by "Dr Monty Drawbridge " at "22/07/2016 - 13:51":

Thank you. I do understand your points but still think that the fact that landlords can buy houses at a more advantageous rate (factoring in mortgage interest relief) than an ordinary home buyer does help to inflate the house prices and until prices fall more in line with average wages the ordinary working person won't be able to buy their own. I think this makes for a very unfair society. It's good to have a rental market for the young and mobile but I do want a society where children can be raised with more stability of residence.

Mandy Thomson

18:53 PM, 22nd July 2016
About 2 years ago

Reply to the comment left by "Christine Reynolds" at "22/07/2016 - 18:00":

The most favourable loan to value (LTV) rate you can get on a BTL mortgage is 80% - meaning you need a minimum 20% deposit. I suspect the average LTV is even lower than this. The interest rates are usually much higher too, although BTL mortgages tend to be on an interest only basis, and for that reason the monthly payments are lower.

Because of the need for a large deposit, many small landlords are now in fact priced out of London and the SE, and even if they aren't, the returns (after mortgage payments, maintenance charges and other expenses are factored in) simply don't make it worthwhile to anyone who needs to make up their income from their rental profits. All this is BEFORE the infamous Clause 24 kicks in!

Any new landlord entering the market would therefore be best advised to let to students in cities outside of the SE - this is not normally accommodation that first time buyers would want.

Gary Nock

9:07 AM, 23rd July 2016
About 2 years ago

Christine the language used by the Treasury is misleading. It's not mortgage interest tax relief that landlords get. It's the ability to deduct a legitimate business expense ( mortgage costs) from their income to arrive at a profit. Like many landlords I never used to increase rents between tenancies and one tenant was on the same rent she was on in 2002. About £100 a month under market value. This saves her £1200 a year. As a result of the "tenant tax" which taxes me on profits I have not made, she has been advised of future rent increases up to 2020 to bring it up to market rent. Landlords are in business to try and make a profit. And to provide a pension for later life after existing pension arrangements were scuppered by the Gordon Brown era. The tenant tax makes all that much harder and tenants ultimately will have to take their share of the additional burden - which in many cases will still not cover the extra tax. Some landlords I deal with in my letting business have sold up and I have reluctantly had to issue possession notices on their behalf making families homeless. This is the human face of the tenant tax. Bankrupt landlords, homeless tenants, kids moved miles away from their schools. Very very sad and a disaster of the previous governments own making.

NW Landlord

9:49 AM, 23rd July 2016
About 2 years ago

Don't buy into the governments spin. How can you justify getting taxed on money that has been paid to a lender to service the largest cost most landlords have to do business it's farcicle. If every business was taxed this way the country would grind to a halt. The rubbish about landlords outbidding first time buyers is untrue especially where I buy where most FTB buyers wouldn't ie low income low value areas and most landlords wouldn't pay what first time buyers pay as most are looking for deals

Mandy Thomson

10:10 AM, 23rd July 2016
About 2 years ago

Reply to the comment left by "NW Landlord" at "23/07/2016 - 09:49":

Even if a landlord does purchase a property at full market value (and some do), that landlord is immediately at a disadvantage compared to a FTB, who is only expected to put down a 10% deposit at most, though 5% is more likely, and 100% mortgages are available.

I'm sorry to say that I believe Clause 24 is being driven by no more than hatred and envy toward landlords, as a clumsy attempt to cool down the housing market and raise revenue, at a very high cost to housing supply - but we know that no modern government *really* cares about that, and it's a dry subject that people in general don't care about, until it comes to bite them!

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