Property118 campaign team demolish Treasury’s ill-conceived arguments

Property118 campaign team demolish Treasury’s ill-conceived arguments

8:29 AM, 10th April 2017, About 5 years ago 45

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Please read the Treasury letter below and then our response:

Correspondence & Enquiry Unit

1 Horse Guards Road



Dr Rosalind Beck
April 2017
     Our reference: TO2017/06948
Dear Dr Beck

 Thank you for your correspondence dated 23 February to the Minister of State for Housing, Planning and London about the changes to the taxation of landlords. As it is not practical for Ministers to respond to all the letters they receive, I have been asked to reply on their behalf.

I am aware that you have received several letters from HM Treasury officials and Ministers on the restriction of finance costs tax relief for landlords, and I am afraid I cannot add much more to the previous responses as the Government’s position on the policy remains unchanged. However, I will try to address the further specific points you have made.

You highlight the impact of the change on landlords in the case studies within the report. While I cannot comment on individual’s tax obligations, the ‘Plymouth Portfolio’ and ‘Pension Portfolio’ examples used in the report would be extremely rare cases and, based on the analysis done by HM Revenue and Customs (HMRC), are far from representative of the impact of the changes on the vast majority of landlords.

While some commentators and survey results based on the change have estimated the impact of the changes, the conclusion that only 1 in 5 landlords will be affected is based on simulations on actual self-assessment and property income data, modelling the impact of the new rules on real data. The Government is therefore confident that this is the most accurate estimation of the impact.

As pointed out in previous correspondence, given this statistic, only a small proportion of the housing market is expected to be affected. Therefore, the Government does not expect there to be a significant impact on rent levels or house prices. The Office for Budget Responsibility (OBR) also expect the impact on the housing market will be small. Taking account of this and other measures at Summer Budget 2015, the OBR did not adjust their forecast for house prices.

It is important to be aware that, while changes to taxation will typically result in some hard cases, the estimation that only 1 in 5 landlords will pay more tax as a result of this measure is not a justification for the change; it is an estimation of the impacts. The previous responses to you have set out the rationale for the change including to reduce the advantage landlords have in the property market compared to homeowners, who receive no income tax relief on their finance costs, and to reduce the distortion between investment in property and investment in other assets, where income tax relief for finance costs is also not given.

In the letter to you dated 8 February, it was explained that, as property income is derived from a landlord’s interest in the land, rather from the services they provide, property income is considered to be an investment, rather than a trade, for tax purposes. For this reason, property income is not taxed in the same way as income from a trade.

With regards to the Chancellor’s comments to your colleague. I can assure you that he fully understands this policy, including the impacts on landlords and the wider housing market.

Thank you for taking the time to make us aware of your further concerns. We will keep this policy under review, as we do with all tax policy.

Yours sincerely,

Nicholas Irvin

Personal Taxation

HM Treasury


Property118 team response below:

To whom it may concern.

We are replying to your email to Dr Rosalind Beck dated 6th of April 2017. We would appreciate it if you would follow the numbering in your reply so that we can be sure you have answered all of the points and not accidentally missed any out. These are very important matters for the providers of rented housing in the UK.  As such the questions need to be answered in full by the Treasury in the interests of accountability for the Treasury’s actions against the private rented sector:

  1. If you are so confident only 1 in 5 landlords are affected, please explain if you disagree that this means approximately 425,000 landlords. Do you consider this number insignificant? (Incidentally, independent AXA research has estimated 40% of landlords will be affected)
  1. Why do you find it acceptable to destroy the finances of between half and a million people?
  1. You say you are not trying to justify Section 24 by repeatedly quoting the figure of ‘1 in 5’ (Jane Ellison and Gavin Barwell also do this) and that you only quote this as it is an estimate. However, logically, the only reason you would quote it would be to suggest that a ‘small proportion’ is affected and so this does not matter. It constitutes an attempt at trivialising its importance; if you believed 4 in 5 were affected you would not be quoting this; although ironically, it is likely that this is the proportion of tenants likely to be affected.  I would also add, on a philosophical level, that even if only one person were affected by a disproportionate, outrageously unfair policy contrary to the rules of natural justice, that would in itself be an abomination. So I don’t see at all why the idea of only 20% of a large group of people being affected should prove so reassuring to yourselves. Since when would it be a moral defence?
  1. Can you also clarify if it is still the Government’s position that tenants are not an impacted group, as they were entirely omitted in the Impact Statement?
  1. Does your 1 in 5 statistic derive from including landlords with and without mortgages? If you have carried out the appropriate research since the policy was announced by the former Chancellor (clearly there was no time beforehand as it was rushed in without preparation or consultation) you will also know the exact number of properties owned by those affected landlords, as listed in the relevant tax returns.That would help you come to your own assessment of the number of likely affected tenants. The Government’s current official position on this remains that zero tenants will be affected. Our estimate, based on an indepth analysis indicates the figure to be close to 4.6 million. Which do you think is the most accurate and how do you come to this conclusion?
  1. Based on your own estimate of 1 in 5 landlords (if you are still sticking to that), can you please share with us the modelling and research used by the Government to calculate how many tenants are now either facing steep rent rises or eviction, assuming that you have updated your analyses?  Many eminent organisations and individuals are now pointing to the obvious fact that rents must rise to pay for this tax levy on the PRS, so we would like to know what assessment the Treasury has made of rent rises especially (as these will in many cases lead to eviction when the tenants do not have the means to pay).
  1.   In terms of the case studies in Dr Rosalind Beck’s report, what is the Treasury’s definition of ‘extremely rare’ and on what do you base this assessment? The NLA estimates that more than 140,000 landlords will move from being basic rate payers to being higher rate payers with no actual increase in their taxable profit. This doesn’t strike us as fitting in with the ‘extremely rare’ label. It also contradicts The Government’s policy to try and take people OUT of being in the higher rate.
  1. The AXA study revealed that 21 per cent of landlords said they plan to sell all their rental properties, 10 per cent will reduce their portfolio, and 7 per cent will switch to commercial property ownership, which is perceived as a safer option. In all, around 46% of private landlords are considering a complete withdrawal from the buy-to-let market or will at least sell some of their properties by 2020. As the PRS contracts because of this and as landlords are now obviously increasing rents wherever they can in order to get ready for paying tax on fictitious profit (money that they do not have, as it has been paid to the lender) how does the Government think this will affect the homelessness situation and the finances of local Government? Will homelessness rise or fall?  Will what happened in Peterborough where 74 families were evicted so that their homes could be used as hostels for ‘the homeless’ become the norm?  What economic analysis and projections has the Treasury made with respect to the costs of ‘temporary accommodation?’
  1. Given that local authorities are now saying homelessness and ‘temporary accommodation’ is rocketing as landlords sell up as a result of the new tax regime of taxing costs instead of just profit, please explain where these people are going to live. Is the Government now categorically stating that there is sufficient social housing for it to not matter if thousands of landlords who provide this kind of housing go bust and/or sell to owner-occupiers – despite there being a mismatch between the two? You will be aware that private landlords have, over the last two decades plugged the gap left by successive Governments following the policy of selling off public stock and not replacing it. So are you saying that this ‘social’ type housing within the private sector can now be got rid of? The local authorities are saying something VERY different; they desperately need this rental housing.
  1. As being a landlord is clearly a full time job for many landlords, requiring physical work and an ever-growing adherence to strict regulations (even including border enforcement duties now) why are you saying that running these businesses providing rented housing do not constitute being engaged in a trade? Why do you refuse to recognise full-time professional home providers as a trade? How would you describe the activity?
  1. Why are you convinced the TWO failed Irish examples won’t be repeated here? We would like evidence please, not the usual unresearched assertions without evidence.
  1. We found your arguments about landlords’ income being derived from an interest in land very confusing. The interest in the land MAY produce a capital gain (although not necessarily – many houses in South Wales for example, have not gone up at all in value in 10 years and some will be in negative equity), but the income accrues from providing accommodation, not from owning land (which in itself does not provide any income).  Also, all trading business has as its aim the provision of goods or services for which people pay a charge. Renting out property is no different (whether it is done by an unincorporated landlord, an institution, comes from a holiday let, having lodgers and so on).

Also, many, if not most, rental properties are leasehold flats. The landlords who let them do not own the land.  Such landlords have no interest in the land. Their income is derived from the tenants’ willingness to pay to occupy the building.

This demonstrates the absurdity of your claim that:  “property income is derived from a landlord’s interest in the land, rather from the services they provide”.

In addition, every business in the country uses buildings that stand on land.  But you do not claim that their income is derived from their interest in the land, do you?

You further state that “For this reason, property income is not taxed in the same way as income from a trade.”  This is not true.  HMRC’s manual states that: “The profits of a rental business are calculated in the same way as the profits of a trade.”  This has been the case since April 1999.

  1.  Independent reports have shown that landlords do not compete with first time buyers (the types of houses required are mostly very different with little overlap) and it is clear that providing a housing service to others is very different to simply living in your own home. Your conflation of the two is equivalent to saying that car rental companies have no right to claim finance costs as an expense of doing business because private car buyers can’t. Do you believe what you call the ‘restriction of finance cost relief’ should be extended to car hire companies (or any companies that hire out anything)? If not, why not?
  1. The Rugg Report of 2008 made it clear that tenant satisfaction levels amongst tenants of ‘individual’ landlords and those in ‘institutional’ lets are broadly the same. The same report recommended that individual landlords be incentivised and encouraged to extend their portfolios to help alleviate the housing shortage. Why is the Government following the diametric opposite path of trying to wipe out as much of this by far more important section of the PRS whilst feting the institutions; who on the whole charge far higher rents, do not serve tenants in any better way and certainly will not get involved in the lower end of the market where individual landlords’ work is hugely important.
  1. Since bodies and individuals such as Paul Johnson of the IFS, Professor Philip Booth of the iea, the Institute of Chartered Accountants of England and Wales, the Policy Exchange, the Council of Mortgage Lenders, Professor David Miles and Dame Kate Barker (not an exhaustive list) are highly critical of Section 24, have said it is ‘plain wrong,’ doesn’t make sense,’ ‘overturns centuries old principles of taxation’ and so on, whose research has the Government used that is superior to theirs? Why are these esteemed economic bodies and individuals so wrong on this when the Government thinks they’re so right on everything else and therefore seeks their views at Treasury Select Committees?
  1. The OBR was set up by George Osborne, who appointed three of his friends to the top positions in it. Are we to then happily assume that these people are impartial and independent? I think not.  Quoting them is therefore irrelevant as they lack all credibility.

As we say, we would appreciate your answering these points, sticking to our numbering. You wouldn’t like to be accused of evading any particular point as it might then be deduced that you have no rational answer to it.

As we are not politicians or game players and thankfully don’t have to engage in the outright dishonesty we observe emanating from the political system of which you are a part (this is not honourable work), we will add that this outrageous policy against the PRS – attacking landlords and tenants equally – with landlords certainly not just taking the hit, as the Treasury implies – will be overturned at some point, so it would be better for all concerned if it were sooner rather than later.

We therefore urge you to pass this correspondence up to the highest level and inform us regarding to whom you have referred it.  This is a matter of such national importance that it should be being dealt with at the highest level, rather than the powers that be sitting back and waiting to see how bad it gets before they act.

We also respectfully suggest that now is the time that we landlords had an audience at the Treasury – that is the least that should happen – so perhaps you can also pass this on as a formal request from the landlords at Property118 to meet with the Chancellor?


Yours faithfully.

Dr Rosalind Beck, Councillor James Fraser, Mark Alexander (Founder of the Landlords Union), John McKay, Chris Cooper and Dr David Price.




Dr Rosalind Beck

9:11 AM, 10th April 2017, About 5 years ago

Before Section 24 was announced, I assumed the Treasury was staffed by really intelligent economists who would know loads more than the ordinary person about economic matters and would answer queries in a logical, rational and academic manner. I certainly don't think that anymore. I find the arguments which emanate from the Treasury completely disgraceful - they just mouth party political claptrap. What an eye opener this whole thing has been about the political establishment.

Rachel Hodge

9:26 AM, 10th April 2017, About 5 years ago

What I tried to do during my meeting with my MP was to concentrate on the effect this was going to have on tenants and the welfare sector. I think this is going to be absolutely catastrophic.

Yes, I started the meeting talking about my tenants, and our symbiotic relationship and my pension, but after receiving the sympathetic, agreeable nods and grunts about how hard-done-by I was, I concentrated on my real concern: what this was going to do to tenants in the rental sector.

I think the Tenant Tax campaign should concentrate much more on the effect S24 will have on tenants and shift away from the affect it will have on rich, greedy LLs.

Whiteskifreak Surrey

9:45 AM, 10th April 2017, About 5 years ago

Reply to the comment left by "Rachel Hodge" at "10/04/2017 - 09:26":

I very much agree with you Rachel! Concentration on what the S24 does do LLs does not meet any sympathy, purely more hate, as you can see in various comments to subject-related articles. We look as a publice enemy No. 1.

BTW - I think it is a great reply to the treasury. The only thing I am missing from it are comments regarding an 'equal treatment' - both private owners vs BTL-ers, and corporate & mortgage free LLs (very rich) vs. the mortgaged individuals.

Ian Narbeth View Profile

10:00 AM, 10th April 2017, About 5 years ago

One problem we have is that our politicians will never answer Yes or No to a straight question. Here is my straight question: "Do you think it is fair that some landlords, not the majority but some, should be taxed at 100% or more of their net income?"
If a politician (certainly a Tory) were to answer Yes it is fair, his or her career ends pretty much immediately. How many constituents would vote for such a scoundrel? If the politician were to answer No, then they either must oppose the policy or say "So what? It may be unfair but it's Government policy and landlords have few friends.".

Unless we can get a Jeremy Paxman or similar interviewer to put the Chancellor on the spot we will continue to get evasive answers. Even then I suspect Hammond would avoid the question 14 times a la Michael Howard.

I would urge all Property 118 readers to put my question or a similar one to their MP and publicize the answers.

Heather G.

10:10 AM, 10th April 2017, About 5 years ago

Excellent as always Ros & co. Re the Treasury, I read somewhere that the average age in the Treasury is 24 - if this is the case, perhaps this is why they have no understanding of business, taxes, industry, benefits etc.

Neil Arnold

10:22 AM, 10th April 2017, About 5 years ago

" The previous responses to you have set out the rationale for the change including to reduce the advantage landlords have in the property market compared to homeowners, who receive no income tax relief on their finance cost"

Surely "they" appreciate that any advantage in tax relief is wiped out due to higher commercial / BTL mortgage costs?
Mortgage free BTL owners won't be affected by clause 24, and have no advantage over private homeowners as they have no finance cost.
The only people affected by clause 24 are those with mortgages, who already suffer a non level playing field due to the increased cost & limited availability of mortgages. A quick check today using a comparison website shows a 90% £150,000 mortgage at 1.89% fixed for 2 years for domestic remortgage and NONE available for BTL.
£150,000 75% shows 1.29% domestic on a 2 year fix (2.08 fixed for 5); and 2.99% for a 2 year fix BTL (4.09% on 5yr fix).

So BTL landlords pay a hefty premium on finance costs, yet it's landlords that the government believes have an advantage?

Added to this, a landlord pays a larger stamp duty on the purchase of a second property, as well as full capital gain on any sale, (private homeowner paying no capital gain), in what way does the government think that it is levelling the playing field?

The second point of "property income is considered to be an investment, rather than a trade, for tax purposes." I own a 3 bed semi in west Wales. The net income after mortgage etc is around £200 per month. Now during that month, I agree, I don't have to put in 20 hours to receive, let's say, £10 per hour, but there's certainly time invested in dealing with tenant issues & any maintenance issues.
Then the tenancy ends, which in the worst case involves court & associated costs and time. But let's take the best case scenario & the tenant moves on. Inevitably there is wear & tear, and someone needs to spend time decorating, repairing, advertising, interviewing, credit checking etc. The very idea of a rich landlord expending no effort is farcical & I'd suggest that I'd be lucky to make minimum wage out of it!

The governments current attack will only reduce the availability of rental properties, especially in some of the most socially deprived areas of the country where they are needed most. Either that, or reduce the standards that landlords are able to maintain resulting in an issue of unacceptable living conditions.

Is this really rocket science???


Tobias Nightingale

10:27 AM, 10th April 2017, About 5 years ago

It wont particularly effect rent levels? Someone should reply back saying can the gov promise they wont be doing rent control of any kind in the coming years then? Speaking personally I can envision the leadership trying it but even the not as outspoken as I would like backbenchers would probably be against (especially as enough of them would realise the reason the rent increases). And surely to god the leadership would not use the Labour party to get it through? Plus these build to rent chaps would surely be got at? Unless they can someone get away with a clause to the effect you are not subject to the cap if ....

When some say it does not effect the morgage free smaller LL, I think its on weak ground saying that. Some may have been once but did not go about making huge portfoilios and by saying that it almost comes over go after those smaller LL not use portfolio leveraged LL. I think we should consider all landlords small and big our friends. After even the big LL who owns 1,000 ( cant remember his name) would be nothing compared to a build to rent company and LL's would be outaged if they said were more professional because we have x times more.


10:46 AM, 10th April 2017, About 5 years ago

Reply to the comment left by "Tobias Nightingale" at "10/04/2017 - 10:27":

Maybe you mean Dave Wells of Bournemouth fame? I'm sure I read he had circa nearly 5000 units, along with trading as a sole trader as opposed to Ltd Co, I suspect he'll be downsizing.... I know a big provider of circa 200plus properties (mostly HB tenants) here in Reading has slashed his portfolio considerably and the rumour is the council are struggling to house his ex residents many are being sent 20 miles up the road to Slough, a double blow for them then!

Great original article and my appreciation to Ros and team..


11:07 AM, 10th April 2017, About 5 years ago

Reply to the comment left by "Tobias Nightingale" at "10/04/2017 - 10:27":

I think you're referring to Fergus Wilson in Kent who has/had ~960 properties (rumours abound that he's sold some but unconfirmed).

Tobias Nightingale

11:15 AM, 10th April 2017, About 5 years ago

Reply to the comment left by "John Maynard" at "10/04/2017 - 10:46":

Crikey I never heard of 'Dave well's But what I said would apply even to him as these build to rent co's could easily surpass him. I can see why smaller LL do not emigrate but regarding large LL even before section 24 I would taken a look back and think maybe its not so wise having such a large debt holdings and sell (given the number would not be so easy to do just like that) but in principle just sell up and be left with just equit holdings y. I would go further why anyone with even a fraction of him would stay in this country with pants climate pants taxes crap people and petty regulations (which councils will probably use to get lucrative fines) of renting property and that sheer number extent of regulations twinned with the number of properties there is probably some infraction. And unless action is taken its not even seen as a business but regulated as if it is.

I can see with that kind of LL why the gov hates private LL so much the bigger ones beat the landed gentry (the duke of westminsters holdings where around 1,000) with through the generations advantages and but these new kids on the block were built predominantly from scratch. Although being more libertarian minded ie Its their biz to take such risks, it is quite easy for others to say say they take lending for business purposes to the extreme and has some characteristics of a ponzi scheme.

The real traedgy of the situation (tenants aside) is the smaller clause 24 who suffer a lack of pension or diminished capital due to cgt or income tax if they used last years provisions. The big LL even all costs with tax/morgages etc lost 90% and dont think it would be that much (such as dave wells) they would still have 500 properties!. all the scare stories such as ct per the room and biz rates would be look reasonable for a big LL (who would probably have a big capital reserve to draw upon) but the small guys (who dont even have mortgages) would be wiped out by such moves. Same with rent control a LL with say 100 properties even after deleveraging properties would still be doing very well but a LL with only 1-4 would got at disproportionally more) Thats why I hate labour because they think all LL have pots of money to adhere to regulation after regulation or can pay this amount more etc citing people like mr wells but have no concern for small LL which if it was anyone else they would be saying we support the small business.

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