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9:05 AM, 6th November 2015, About 9 years ago 13
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Here is my exchange of emails to date with Rob Marris, Labour MP and Shadow Financial Secretary to the Treasury and also Sir Roger Gale, Conservative Chair of the Finance Committee. See if you can spot any ways in which Rob Marris’ approach differs from that of David Gauke, actual Financial Secretary to the Treasury. And then, ask yourself, is this the role of the Opposition? To agree with everything the other one says?
6th October 2015:
Dear Mr Marris
I am writing with regard to Clause 24 of the Finance Bill, which, as you will be aware, abolishes landlords’ right to offset the main cost of our business when calculating profit (and to tax us in effect on turnover). As a landlord I’m still in a state of shock over it; the Conservatives were silent on the subject of landlords during their election campaign, so this was very unexpected.
Many landlords do not yet understand the significance of it as George Osborne presented it in an incredibly misleading and disingenuous way in his Summer Budget speech. In addition to landlords, it is going to have a terrible impact on private tenants who will see rents rise and will be displaced and some will be made homeless as landlords are forced to sell up businesses suddenly rendered unviable.
I am pasting below a copy of the letter I have sent to all of the members of the Finance Bill Committee (including yourself) and I would be grateful if you could read through it carefully as it is important. I would then like to ask if you can discuss these matters with your colleagues on the Committee and ask them to support the amendment we are proposing (also pasted below)? I am sure you would not like to vote for something that will be detrimental possibly to millions of tenants in the private rented sector. The Conservatives are trying to sneak this thing through, hoping no-one fully understands it.
Yours sincerely
Dr Ros Beck
[this letter went unanswered!]
16th of October 2015:
Dear Sir Roger and Mr Howarth
I am writing regarding the Finance Bill Committee meeting yesterday. There were approximately 90 submissions made, the vast majority relating to Clause 24. These covered the issues most comprehensively, in addition to letters sent to Committee members which summarised the salient points. As you can imagine, many hours would have been spent preparing these by concerned people and experts in the field from the whole country in order that the Committee could be fully informed, and for an intelligent debate to take place. We had been encouraged to volunteer our expertise and understanding of the measure, utilising this democratic procedure.
We were, therefore, astonished to read the transcript of the meeting, because it was instantly apparent that no MPs had read any of this vital information. The sparse discussion that did take place for a couple of minutes demonstrated the Committee members’ ignorance of the contents of the Clause and its repercussions and implications. Had the Committee members read even a fraction of the written evidence, they would have had serious concerns about this going ahead. I am surprised that you, as the Chairs, did not admonish them for this and adjourn the meeting.
If the Committee members do not even read the written evidence, what is the point of this being invited from concerned parties? I would prefer to be told that no written evidence is admissible as none is going to be read. This would be the honest course of action.
Could you please let me know the procedure to follow to make a formal complaint about this?
Yours sincerely
Dr Rosalind Beck
Property118 Landlords Group
16th of October 2015:
Dear Dr Beck,
While I appreciate your concern it is also clear that you do not understand the conventions under which the Speaker`s Panel of Chairmen work.
Our duty is to act, in committee, on behalf of the Speaker. As such we maintain, irrespective of political party, strict impartiality and neutrality. It is most certainly not for the Chairman to suggest that Members of the House should consider any line of argument or debate any issue other than that on the face of the bill. Our job is to manage the business in an orderly fashion and, at the end of the debate, to cause the findings of the Committee to be reported to the whole House for further consideration.
In an endeavour to be helpful I can only suggest that you direct your observations to the Treasury Minister, Mr. Gauke and to the leading Opposition Front Bench Spokesman, Mr. Marris.
Yours sincerely
Sir Roger Gale MP
17th of October 2015:
Dear Mr Gauke and Mr Marris.
Sir Roger Gale has suggested that I write to you about a serious complaint. I have also contacted the Scrutiny Office regarding this matter.
For ease of reference I will paste here my communication with Sir Roger and Mr Howarth. Can you please get back to me urgently regarding this?
I believe that Parliamentary procedures will be brought into disrepute if this matter is not resolved. What has happened is nothing short of a disgrace.
Yours sincerely
Dr Rosalind Beck
17th of October 2015:
From Rob Marris:
Thank you for your e-mail.
In preparation for the debate on clause 24 of the Finance Bill, I did look at submissions made. I did not look at every one: the Opposition simply does not have the resources.
In a nutshell, the clause provides that landlords with higher incomes will no longer receive the most generous tax treatment.
I would like to think that I was aware of the likely effects of this clause, and that my awareness was reflected in the remarks I made during the debate on it. It is a judgement call as to whether those likely effects will be desirable or undesirable. That is what politics is about.
On balance, having given it quite some thought, Labour decided that those likely effects would be more desirable than undesirable, bearing in mind the long transition period – from the tax year 2017-18 over 4 years.
Rob Marris
MP for Wolverhampton South West
22nd of October 2015:
Dear Rob
Thank you for getting back to me regarding Clause 24. Naturally, I am disappointed that the Labour Party isn’t yet changing its position on this (however, it is only a matter of time). As I am determined to get this insane decision reversed, I shall view your reply as the beginning of a dialogue on this. With that in mind, I respond here to some of your points, in the hope that I can make a tiny chink in how you see this.
The ‘level playing field argument’ is of course untenable, and has been categorically proven to be so, not least by the Director of the IFS, Paul Johnson, by other leading economists, including Professor Philip Booth of the Institute of Economic Affairs (with whom I am in communication and who suggested to me that I ask the Telegraph to start a campaign against it, which I did) and by numerous reports which outline how the tax system in the UK overwhelmingly supports the owner-occupier and the tax system for landlords is not generous at all, in comparison with many countries (where there are far more policies to incentivise the PRS, rather than attack it).
It is in any case wrong to compare the business of renting out houses to the non-business of owning your own home. The former produces tax revenue – with tax paid on the rental income and any increase in the value of the property. It has only been possible to link up the two in this tenuous fashion, because of the misnomer ‘tax relief’ being applied to what has always been (up to the 8th of July 2015) acknowledged as the offsetting of business costs. It’s about time the thing was called by its proper name.
The Treasury seems to want it both ways; firstly, to treat us like owner-occupiers, but when it comes to CGT etc., to treat us as businesses to be taxed. Which is it to be? Are we a business or are we not? (NB. I am giving you the arguments here that you could be using against David Gauke)
Also, if there is to be a ‘level playing field’ no-one has presented an argument explaining why ‘individual’ as opposed to ‘incorporated’ landlords have been targeted (unless the Chancellor will once more ‘level the playing field’ once he’s driven out many private landlords). The Institute of Chartered Accountants of England and Wales in its submission to the Finance Bill Committee (which seems to have been published late with no indication that anyone even looked at it) said that this leaves a ‘cliff edge’ in the middle of the field.
I must also answer your point about affordability of mortgages; it is wrong to say mortgages are cheaper for landlords – we pay higher interest rates and we cannot borrow larger ‘unsustainable’ amounts as mortgage lenders limit LTVs far more than they do on owner-occupier mortgages. Historically, even during the credit crunch, business mortgages were a much safer bet than owner-occupier ones and ran at lower repossession levels (0.7% v. about 2.1% IIRC). Landlords are not threatening the economy; Clause 24 is.
So I can only assume you are referring to the fact that landlords can get interest-only mortgages and owner-occupiers can’t. The answer to that is easy – outlaw interest-only mortgages from now on. This may as well be done anyway, as pretty soon, no-one will take out a BTL mortgage. Who would take out a business loan to purchase a tax-producing asset, take all the risks and do all the associated work only to be told they could not offset the main cost of creating the profit, and would even be taxed on the money paid out as though it were money still in their possession?
You also say this is about stopping higher-rate taxpayers from receiving favourable treatment. Well the wealthiest landlords (who have no borrowings) will continue to get this ‘favourable treatment,’ as they will be unaffected; on the other hand, as the Residential Landlords Association has pointed out, an estimated 60% of basic rate taxpayers will become higher rate taxpayers immediately as a consequence of the policy, because their main outgoing has been redefined as ‘profit.’ Apparently, the Treasury is a bit worked up about this ‘unintended consequence’ behind the scenes; a fact that the Labour Party has not exploited.
Rental demand in this country is booming and we have had the legs kicked out from under the PRS at the exact time when it would have been more appropriate to offer landlords incentives to build to rent, to renovate to rent and to increase the supply of ‘social-type’ housing. This is the message the Labour Party should be getting across – offering an alternative vision to the Tories. If it did, it could be seen as supporting both business and tenants. With a greater supply, rents would go down. Instead, I’m sorry to say, your email sounded like it could have come from David Gauke.
I have an awful feeling that the reason behind the Labour Party’s reluctance to take this common sense, pro-PRS stance is because it conflicts with the populist position. There is a refusal to see the symbiotic relationship between landlords and tenants (most surveys actually point to us getting on really well with each other, contrary to some scare-mongering and scapegoating done by, for example, Shelter). If the Labour Party doesn’t take a proactive position on this, the record will be there for all to see – that the Labour Party supported this attack on tenants, because they couldn’t face saying or doing anything that veered from the PC anti-landlord standpoint that no-one dares deviate from; that at the same time as they were loudly protesting about tax credit cuts they were unanimously backing something which could affect even more people – especially those on benefits – and to a far more damaging degree.
The problems are now beginning. Trust on the part of landlords in the Government has been greatly damaged and we also can’t trust the Labour Party and what they might do if they got into power. In order to survive, landlords will now do whatever is necessary. I started my rent increases this month. I defy anyone not to do the same if they were faced with potentially astronomical tax bills based on ‘fictitious income.’ I have a pensioner and her adult son living in a house in Caerphilly whose rent has been £500 pm since October 2008. I estimate I can raise this to £625 within 3 years. I don’t want to do this and it is quite likely at some point I will have to evict this woman from her home and let it to tenants who can pay more.
You and David Gauke mention the ‘gradual phasing in’ of this; well I believe the Labour Party should be more focused on how people will now be ‘phased out’ of affordable rentals. I have personal experience of having been brought up by an unemployed father on benefits (after 30 years on building sites and on the buses). My father was able to remain in his council house until he died aged 79. Had he been displaced in his old age that could have been enough to finish him off. These are the human costs of Clause 24.
So I clearly don’t want to increase rents or evict people settled in their homes, but I am being forced to by the ‘lunatic tax’ (as Richard Dyson called it). This is happening all over the country and then I read yesterday that a member of the Labour Party suggested the Chancellor should go even further to remove these ‘generous tax breaks’ landlords receive. Here is the comment:
‘May I suggest, from the party of Siobhain McDonagh, that if the Government are looking for a compensating saving for ameliorating the situation of the poorest families, they should look at the mortgage tax relief given to buy to let landlords. In the Budget the Chancellor cut it back to the basic tax rate. If the Government want £2 billion more, they should cut it a bit more, help the housing market in London and make sure that poor families and poor women do not lose out.’
Can you confirm if this is the official position of the Labour Party? For all the reasons I have already outlined, this is further madness. Everyone seems to have swallowed the line that offsetting our business costs is in fact receiving some kind of allowance from the Government. You can’t imagine the frustration and anger felt by landlords when we read these comments.
George Osborne is wrong about this Clause, as he is about tax credits and about involving China in our nuclear industry. He ignores experts on all these matters. He is dangerous, and we need somebody who will make an effective stand against him.
The Labour Party needs to table and support an amendment that it only apply to new purchases and must try to persuade some Tories to follow suit. This way you would still be supporting Clause 24 (if you feel you have to) but without its adverse consequences of higher rents and bankruptcy. Nobody from any party has adequately explained why this cannot be done. Please let me know if you are able to take this on.
Best wishes
Ros Beck
4th of November 2015:
Dear Rob.
You may recall my earlier correspondence asking that the Labour Party reverse its position on Clause 24 of the Finance Bill? I am determined to get the Party see sense on this and to this end I have just had an open letter published. Your name is mentioned in it. I have also forwarded it to the Telegraph journalist leading the campaign against the ‘tax grab.’ Perhaps you can give me your opinion on its contents?
Also, feel free to let anyone in the party adapt and take on any of my points in any speeches they may make announcing a reversal of Labour Party policy on this – I don’t care if my work is attributed or not!
All the best.
Ros Beck
4th of November 2015:
From Rob Marris:
Thank you for your courtesy in sending me a copy of your heartfelt response to my colleague Siobhain McDonagh MP. Like you, she spoke from the heart, based on her values and on her own experiences of housing.
You say: “This dangerous Government decision to prevent landlords from offsetting the main cost of our businesses.” That is not entirely correct.
Clause 24 of the Finance Bill introduces a restriction on the deduction of finance costs related to let residential properties, and instead provides for a tax reduction for such costs by reference to the Basic Rate of Income Tax. . To put it another way, the change will essentially prevent residential landlords claiming Income Tax relief at the Higher Rate on interest paid on loans to buy a property to rent.
To give landlords time to adjust, the restriction and tax reduction will change gradually from the tax year 2017-18 over 4 years.
The background is that persons subject to Income Tax are currently able to deduct interest and other finance costs, such as the fees incurred when obtaining or repaying a loan, from the rental income in arriving at the profits of the property business, where the costs are incurred wholly and exclusively for the purposes of the property business.
Individuals are also able to make a claim to deduct interest on a loan to invest in a partnership when calculating their net income.
Clause 24 restricts those deductions for finance costs relating to let residential properties, and instead allows for a deduction from an individual’s Income Tax liability. The maximum relief that can be obtained is the Basic Rate value (currently 20%) of the total finance costs on loans referable to let residential properties.
This clause will ensure that landlords with higher incomes no longer receive the most generous tax treatment. Despite the concerns raised eloquently by you and others, this still seems to Labour to be the right thing to do.
Rob Marris MP
Shadow Financial Secretary to the Treasury
5th of November 2015:
[From me:]
Dear Rob
Thank you for taking the trouble to reply and so promptly. I really appreciate it.
But I am afraid to say that you are sounding like David Gauke again! As you know, Clause 24 is not about doing anything against the ‘wealthy’; they will remain as they are. It is an attack on landlords who took out mortgages to purchase houses to rent out; people who provide housing to millions of people.
Up until the 8th of July 2015 this was a normal business like any other (although in recent years we have been targeted and spoken about as though we are the devil incarnate). On that day, however, renting out houses became effectively defined as a quasi-criminal activity, subject to a new punitive tax regime whereby one section of landlords is singled-out (‘private’ landlords with mortgages) with no rational justification for this discrimination to pay tax on a ‘fictitious income’ rather than their actual income. Apart from anything else, this sets a dangerous precedent in the tax regime of the UK, whereby a large part of what is effectively ‘turnover’ is taxed. It’s crazy, pure and simple.
The IFS, the IEA and several academics have warned against it, aware that it does not remove any special ‘reliefs’ for ‘wealthy’ people, but simply prevents the claiming of the same business expenses by landlords that any and every other commercial activity has a right to. Obviously, it cannot be logical to tax debt. Where else does this happen?
As the Shadow Financial Secretary to the Treasury I don’t understand how you can support it. As I said to Ms McDonagh – are we businesses or are we not? I’d love an answer to that question as if we are businesses we can offset the costs of producing a taxable profit and if we are the same as owner-occupiers we can enjoy the massive tax advantages granted to them. Instead, blind prejudice is leading politicians of all parties to ‘punish’ us with the worst of all worlds picking and choosing which category to put us in, depending on the various arguments being used. Naturally, we will be investigating ways of obtaining legal redress if the decision is not reversed. Anybody looking at this dispassionately would find in our favour, as the chief economists mentioned above have done.
Going back to Labour’s stance on it, I am looking for answers regarding why Labour has nothing to say about the effect of this clause on tenants. HMRC wrote one sentence from the OBR’s ‘assessment’ several months ago saying that rents would be unaffected and this is clearly a joke. Landlords who have understood the change are all now looking to increase rents, if they haven’t already started. Many landlords haven’t understood yet that they’re going to have pay tax on non-profit – misled by the Chancellor’s false reassurance that the majority would not be affected. They will soon follow suit. Contrary to some views, many of us have not put up rents in years, as we are not the ‘money-grabbing’ people we are depicted as (and why other businesses, selling whatever their wares or services are within a capitalist system are not attacked in a similar way for making a living out of their work is beyond me).
Of course when surveys show a big spike in rent increases over the next couple of years Labour will then speak up very loudly and no doubt attack landlords and talk about rent caps as though landlords chose to raise rents to bolster our own coffers instead of as a direct and inevitable consequence of this lunatic tax on finance costs. You only need to look to what happened in Ireland to see the inevitability of this. In the meantime not only landlords will suffer but many tenants will also.
Which leads me to a simple and straightforward question. It is said that politicians can’t answer these. Let’s see if you can. It’s an ‘either/or’ question (and as it about priorities, you’re not allowed to answer ‘both’).
What is the priority for you and the rest of the Front Bench of the Labour Party in 2015?
Is it to support:
OR:
The answer to this question should dictate your position on Clause 24.
If your answer is ‘a’ you must oppose it (as the Clause is ruinous for tenants).
If your answer is ‘b’ you may as well all join the Conservative Party now.
I look forward to your response and would like to thank you for the fact that you do indeed respond (Ms McDonagh is yet to respond to my letter, so I will copy her in to this letter and see if that encourages her to answer me. She made some very serious accusations about landlords and I would like to hear how she chooses to justify them). I will then try not to bother you for a while, if you give me a straightforward answer to my question!
Your sincerely
Ros Beck
Previous Article
When will the Summer 2015 Finance Bill get passed?
John McKay
20:27 PM, 6th November 2015, About 9 years ago
My email to Rob Marris to tell him why I am no longer worried about Clause 24
Dear Mr Marris
I hope you have time to read this email. I appreciate you are a busy man and that you are experiencing many other people writing in relation to Clause 24. It is about one of those communications and your response that I write. All the emails are being published for everyone to see and for future reference.
I am a portfolio landlord but I am no longer very worried about the tax change, I’ll explain why a little later.
I am also one of many landlords that has been vigorously fighting the reduction of mortgage interest belief, and I’m still stunned that so many intelligent people have fallen for the spin that the Chancellor has offered to support the proposal.
How the plan was hatched I can only guess, so I offer just one of a million scenarios and let’s go back to well before the budget. Imagine Mr Osborne and Mr Cameron, before the election, having a meeting late one evening about the election campaign and deficit and how they were going to tackle them. This of course is fiction, who can say what actually happened?
Somewhere in No 10 Downing Street, early 2015…
The Prime Minister and the Chancellor are both in good spirits. They’re sitting relaxed at a table with mugs of Darjeeling tea (the Queen’s favourite) and munch on Hob Nobs which David Cameron only normally gets in for when he has to entertain Nick Clegg. Something he does as infrequently as he can so the biccies are a little stale. George Osborne dunks the Hobnobs in the mug to hide the staleness but is mildly irritated when bits fall off and into the tea.
They’re putting their various strategic plans in place for the forthcoming election, though the Chancellor can’t help the occasional look around the room and a disdainful glance at the wallpaper. He vows to himself that when he’s Prime Minister he’ll get it changed for something decent and he knows just the company to supply it.
Eventually they get on to the subject of the deficit…
Mr Osborne says, ‘’Dave I have a plan. We’ll give people, say the over 55’s, access to their pension pots. Many will jump at it but especially if we give them a sweetener to pull the money out. I suggest that they can have the first 25% with no penalty, but then we’ll tax them on the rest of it. It should bring in millions! What do you think?’’.
Mr Cameron replies, ‘’it’s a great idea George, brilliant in fact, but what concerns me is that the oldies will pull out all their money and then stick it into property. That’s probably not going to look that good as people are already moaning about landlords and buy-to-let. The people that empty their pension pots will love us and vote for us, but we’ll make ourselves really unpopular with Generation Rent and their families’’.
Mr Osborne laughs. ‘’Ha don’t worry about that Dave. I have a cunning plan! Let me explain….’’.
They chuckle for a minute or two as to which one of them is Baldrick and which one is Blackadder and then George reveals the super-secret plan he’s been working on. And then they carry on, scheming into the night, joking and laughing at how clever they are.
Some time later, the election is over, the Tories have stormed into power casting aside all the other parties in the race. They had of course not told the electorate of the plans as they would not have gathered so many votes from landlords across the country, and certainly not from the people that were taking money from their pensions to invest in property. The Prime Minister is very happy and indeed so is the Chancellor. It’s time now to pull together the other parts of his dastardly scheme, one of which is the reformation of the tax credit system. However he also has to deal with the BTL issue that he‘s promised his next-door neighbour that he’ll nail.
He calls a meeting with a couple of senior officials at HMRC and tells them that he’s going to steal a Green Party policy that should make him (oops, the Tories) very popular. Even Generation Rent have been pushing for it so there shouldn’t be too many problems and he’s sure he can put a very positive spin on it.
With a big smile on his face he announces, ‘’I plan on limiting mortgage interest relief to 20% for landlords. The higher rate tax payers will have to cough up lots of extra tax’’.
There is a sharp intake of breath from the senior officials from HMRC, because of course they understand this change and have had plenty of time to ponder on the ramifications. Natalie Bennet had been shouting about doing just this thing but without any discussions with them, but they’re experts in their field and had dismissed this as a bonkers idea from the lunatic left!
Official 1 says, “Chancellor it will indeed bring much extra tax in, but it will also take many thousands of lower rate payers into the higher rate. The Prime Minister had said that income tax would not be increased and this effectively makes him a liar”.
George Osborne retorts, “How many people will it affect?”
Official 1 replies, “Well I don’t know, we’ll have to calculate it”.
George Osborne says, “No you don’t. We’ll just run a model on how many higher rate payers will be affected and how much tax will be taken”.
Official 2 says, “But Chancellor, when we do our consultation phase all the landlord bodies will flag it up”.
George Osborne hits back, “Then we won’t have a consultation phase, we’ll just do it”.
There’s another sharp intake of breath from both of the HMRC officials. They look nervously from one to another and eventually the silence is broken.
Official 1 says, “But Chancellor the consultation phase is one of our ten tenets in the Principles of Taxation. It’s our own document, it’s one of our own rules. We have
to have a consultation”.
Official 2 quickly adds, “And this will effectively be a tax on turnover, which means that people will pay tax when there is no profit meaning the tax rate will be infinite, and they’ll even pay tax on a loss. Another tenet is that tax must be seen to be fair and this definitely isn’t fair”.
George Osborne utters 5 words slowly and deliberately, “There will be NO consultation”.
And so was formed a measure that has already proved a catastrophe in Ireland where limiting mortgage interest relief to 75% has helped push rents up by a staggering 24%!
Indeed six of the ten tenets of taxation were broken in one swift move.
All the landlord bodies have approached HMRC but have been told that there will be no backing down on this because the Chancellor has said so. Freedom of Information requests have been submitted to HMRC to ask how many properties will be affected by this move and how many landlords will be moved from lower rate to higher rate. In both cases the reply has been that no calculation has been made, a quite staggering response don’t you think? Yet the NLA have calculated that it will be something akin to 150,000 people in the position of going up a tax band.
The Chancellor and David Gauke continued to put the spin on it that they wanted a ‘fairer tax system’ and that ‘it levelled the playing field’’, despite two of the country’s top economists stating that the tax change and the thinking behind it was wrong. Forgive me, but on matters of economics aren’t they the experts?
Some landlords across the country woke up to what the change means, others took a while longer, some fell for the line about it only affecting 1 in 5 of higher rate landlords and still haven’t realised the true effects. The same applies to some MPs that still believe that this is a move about helping people on the housing ladder despite no evidence saying it will do this. In fact the opposite is true.
Now please allow me to be somewhat self-indulgent here Mr Marris but I just want to repeat some words that I sent to your colleague Siobhan McDonagh.
So are you saying that it’s wrong that there is mortgage interest relief on all BTL properties or just FTB properties? From what you said in yesterday’s reading it appears you would like all landlords out of the market (including all the MP’s that have rented properties). This is another important point and I’ll explain why. If you pick an imaginary date and say all Landlords must sell up on that day then of course there may be some current tenants that will be able to do a deal with their landlord and buy their home, others will not and will be moved on. Someone else will buy the property so no change in the number of people housed and that’s important isn’t it? However you must also appreciate that if all landlords are to sell up, then the countless thousands of HMO landlords around the country will be evicting their tenants, and the properties will revert to family units. So now many thousands of people that were housed are now out on the streets and looking for starter home accommodation! But remember that they can’t rent, so what would you like them to do Ms McDonagh? It’s a serious question and I am making the point that the net result of the PRS is that we relieve pressure on the FTB market, we don’t exacerbate it.
I would like to demonstrate the point that landlords help the housing situation further and I’ll use my own houses to do so.
Property 1
A large 3 storey house that was owned by a couple that had emigrated to Spain and had kept it for their daughter to live in (a young woman). She was rattling around in this place but when I bought it I turned it into a medium spec HMO. All rooms are double, one is fully ensuite and two others have their own showers and basins.
Property 2
A 2 storey 4 bed house. The owners had moved out and when I went to view it I met the male from the couple at the door. His first words to me were ‘’Come in but I’ll tell you now the place is a real s**t-hole”. He wasn’t wrong. I made the place into a nice home again and I’ve had various low-paid tenants in the place over the years. None of them could afford or wanted to buy a place. The current tenant is a single mother of 5 and whilst the tenancy has had its problems I’ve let her stay because I feel sympathy for the kids who have not had the best start in life. They’ve been there a while now but I may well be forced to sell this house due to the tax change, so where do you think will they live Ms McDonagh? The kids will likely be uprooted from their very local schools and I guess they’ll end up in B&B accommodation because I very much doubt there’s any spare Housing Association stock available for such a large family. Indeed a letting agent friend of mine told me last week that he’d had a call from the Council asking if he had a house that could home a couple with 4 kids as it was costing £250 a night for B&B accommodation! Alas when the tax rules bite it’ll be the lowest paid people in Society that will be hit by the evictions because they won’t be able to afford the rents necessary to cover the extra tax burden.
Property 3
A mid terrace 3 bed house with garage. This house has a history! It’s not all that old but is on an estate that was classed as an underprivileged area. It’s a long story but when the estate was built all the houses were marketed to Hong Kong residents as good investments and it resulted in all properties being tenanted. Alas during the construction period a local Travellers site had been uprooted and caused much bad feeling which the gypsies wanted to avenge. They systematically destroyed the estate resulting in all the tenants moving on as they had no ownership. It was a ghost town and many houses were boarded up, a couple had even been set on fire. Anyone could have taken their pick from all the houses up for sale but they didn’t. Anyone could have bought the house that I bought but they didn’t. They weren’t prepared to invest and they couldn’t see what the estate could become. Well I could and I did buy a house. It again took a lot of work to turn it round, and of course money. The estate has, year-by-year, been coming up in the world and is a really decent place to live now. Ever since my first tenant I have let it out at £600pcm, but I’ve just had a change of tenant, and due to the tax change I’ve increased the rent to £675. It let in no time at all. That’s a 12.5% increase and I’ll be imposing annual 5% rises which are totally due to the tax change. I have to do this.
Property 4
A 4 bed mid terraced house. There was a mother and daughter living there and I’ve turned the house into a very nice 4 bed HMO. All rooms are double and the lowest rent is currently £65pw, which includes all utilities, council tax and broadband. The house is extremely well furnished and I don’t really make any money on it but due to the tax change I’m imposing a rent increase of £5pw on all the rooms. Just to illustrate the sort of tenants I have, 2 of them are foreigners that cannot buy here as they do not have a credit history. One gentleman is divorced and wants to stay local to his kids. He will never be able to afford to buy his own place I’m afraid. The last gentleman had owned his own house but his work as a hospital porter does not pay enough for him to keep it on. He now lives in a very large room in a very nice and well equipped house for £70pw including all bills.
Property 5
A 4 bed mid terrace. This was purchased some years ago as a ‘Sale and Rent Back’ (SARB). The couple owning it had lived there all of their married lives but had got themselves into serious financial difficulty. I bought the house and rent it back to them on a price they can afford, but they have cleared their debts with the proceeds of the sale. They’re getting on in age now and are both a little infirm. I’m hoping I can hang on to the place but the tax change may force me to sell. If I can keep it till 2020 when the tax change fully hits then it is entirely possible they may have been taken into care or permanently moved on. They are so settled in the community that if I have to evict them then it may well force that ‘permanent moving on’ it will be so upsetting for them.
Property 6
Similar to Property 1, a 3 storey house but it had 2 single guys living there. Now it is a 5 bed HMO. All room rates are going up by £5pw due to the tax change.
Property 7
A large 3 storey Victorian town house. It was being run as an illegal HMO and was definitely not up to spec. It is now a very high quality HMO with 6 rooms. Every room is ensuite, 3 of them have their own private little hallways and 3 of them have their own compact kitchenettes. There is also a main kitchen for proper cooking. Conversion cost and furnishing was £55k.
Property 8
Exactly the same as Property 7 in terms of what it is but it had been empty for some considerable time. I have housed 6 people again so taken pressure away from the FTB market. Conversion cost and furnishing was around £50k.
Property 9
A 2/3 bed bungalow which had been empty for in excess of 10 years. I spent a considerable amount of money on it and it now houses a young couple and their child. They will be getting a 5% rent increase due to the tax change. As with all the other rents, there will now be a 5% annual rent increase. They’ve been with me for around 3.5 years and have benefitted from my policy of never increasing rents mid-tenancy but now I am forced to.
Property 10
Another 3 bed mid terrace that I did as a SARB. The owner had inherited a massive debt from his ex-wife and by selling his house to me he cleared it. He has a low rent and his son has moved back in along with wife and daughter. Their rent will be going up substantially due to the tax change but they again have never had an increase in the 8 years they’ve been with me.
I could go on…
So here are my questions to you Ms McDonagh:
1. In any of these properties have I prevented a FTB getting on the market?
2. As I have HMO’s would you agree that I have taken pressure off that FTB market?
3. Have I bought much needed housing stock back into use? Incidentally I’ve even done that with my own home that was very run down and long-term empty.
4. Like many professional landlords I do not increase rents mid-tenancy. Can you see that this tax change is forcing me to alter that policy?
5. How can you support this lunatic policy when it will do so much damage? I fully appreciate that if there is real evidence of FTBs being kept out of the market by investors then it makes some sense to address the issue, but clearly this is not the way!
6. Just to finish off the questions I’ll tell you that my policy of low rents means that my income is a little over £29k. Coincidentally my mortgage interest is an almost identical figure with the current interest rates. This proposal is therefore taking me well into the higher rate band even though I’m not earning more income. When interest rates go up the problem is greatly amplified. Do you understand why landlords are having to fight back?
Ms McDonagh answered none of my questions.
Mr Marris, I was pretty much flabbergasted at your response to Mr Colin Miller’s questions to you about Clause 24. I do not understand how or why you think rents will not go up and houses will not be sold. It is completely beyond my comprehension. You say that landlords have time to react but apart from these two things, and of course lowering maintenance standards, I can’t see what you expect them to do.
I know of at least 4 landlords that are selling properties now because of the tax change. I did a short survey of 6 portfolio landlords and the result was that the average number of properties that would be sold is 6, displacing 3.7 people in each. There will be plenty more of course. I have no idea why you think we will be able to sell to other landlords as the reason we will be selling is that the tenants will not be able to afford rent increases! This will often be in areas where there are low paid workers and housing benefit tenants. They’re already facing being hit by tax credit changes and now this. They cannot possibly afford the rent rises that landlords like myself (a lower rate tax payer) will be forced to impose. Can you really not see that?
I know many more landlords that have already increased rents and I am about quarter way through my portfolio in doing so. This is why I am now no longer worried. I have fought the tax change as hard as I possibly can and I can hold my head up high. As I have demonstrated to you, I am not on some amazing income that can absorb the effect of the change and I’ve calculated that if and when interest rate rises come, it will be devastating to me. I must therefore, as you put it; ‘adjust’ to the situation. Raising rents is a new experience for me and it is not one that I relish, but it is Clause 24 that is the cause. I do not like doing it but I must and I feel a sense of relief at the same time as regret.
When tenants in your constituency complain to you that rents are going up or they’ve lost their home because the landlord is selling up please remember that you’ve supported the tax change. It’s on public record.
Lastly I’ll leave you with a thought. My own Conservative MP, Shailesh Vara, admitted to me that the reason for the change is down to tax revenue, and yesterday Mr Gauke admitted in a letter to a Conservative Town Councillor that it is part of measures to raise money to clear the deficit and 'rebalance the economy'. So the spin about helping FTBs get on the ladder is just that – spin! Yet, so many people have fallen for it. It’s not a good situation is it Mr Marris???
John McKay
Mr Marris’s standard response:
Thank you for your e-mail.
Clause 24 of the Finance Bill introduces a restriction on the deduction of finance costs related to let residential properties, and instead provides for a tax reduction for such costs by reference to the Basic Rate of Income Tax. To put it another way, the change will essentially prevent residential landlords claiming Income Tax relief at the Higher Rate on interest paid on loans to buy a property to rent.
To give landlords time to adjust, the restriction and tax reduction will change gradually from the tax year 2017-18 over 4 years.
The background is that persons subject to Income Tax are currently able to deduct interest and other finance costs, such as the fees incurred when obtaining or repaying a loan, from the rental income in arriving at the profits of the property business, where the costs are incurred wholly and exclusively for the purposes of the property business.
Individuals are also able to make a claim to deduct interest on a loan to invest in a partnership when calculating their net income.
Clause 24 restricts those deductions for finance costs relating to let residential properties, and instead allows for a deduction from an individual's Income Tax liability. The maximum relief that can be obtained is the Basic Rate value (currently 20%) of the total finance costs on loans referable to let residential properties.
This clause will ensure that landlords with higher incomes no longer receive the most generous tax treatment. Despite the concerns raised eloquently by you and others, this still seems to Labour to be the right thing to do.
Rents should not go up as a result of this measure. The reason is that there is competition in the housing market and, due the chronic shortage of housing in many parts of the country, many landlords already charge what the market will bear.
Tenants should not be evicted as a result of landlords’ reactions to the measure. Legislation provides some protection for sitting tenants. If a landlord sells, it is likely to be another landlord who buys.
Clause 24 will have no impact on the level of homelessness. There will be just as many houses and flats after the introduction of this measure as there were before.
Clause 24 is unlikely to cause the supply of housing to increase.
Rob Marris MP
Dr Rosalind Beck
20:39 PM, 6th November 2015, About 9 years ago
Reply to the comment left by "John McKay" at "06/11/2015 - 20:27":
I don't know which I prefer - the Gauke gobbledeegook coming out of a supposed Labour MP's mouth or my most recent response: 'Thanks. Noted.' Actually, I prefer the second one as who wants to read that awful 'black is white' horse manure?
Well done John for a brilliant effort - you should start writing plays.
Gary Dully
11:08 AM, 8th November 2015, About 9 years ago
Reply to the comment left by "Ros ." at "06/11/2015 - 20:39":
I was pondering about placing all the Politicians mugshots on the letters of rent increases to my tenants that sit on the finance committee.
I don't see why I should take the rap for the increases that I will now have to introduce, that I didn't want to and I am forced to.
Landlords as a group are now under siege by all politicians and media.
For example: This weeks proposal from our Housing Minister over all HMO's of all types and sizes will now have to be licensed will also send my rents skywards.
Not because of any room being disallowed, but because of what we will be hit with by the local authorities.
They were promised by GO that they could keep all their business rates and now they will have another revenue source to pick off and screw.
I foresee a change of class for all HMO's that drag them into business rates.
I can guarantee they will be singled out for massive license fees and increases in Council Tax that Landlords are obliged to pay for that "Class" of accommodation.
I got hammered last year by Cheshire East Council for a change of class change in council tax on a 3 bed semi in Crewe.
That cost was absorbed by me, but I can't do that anymore thanks to 'Clause 24'
The smaller HMO usually has a "Box" room that are rented, I have already phased them out in my properties last year.
I was considering restarting them again as a contribution to my tax bill, but the knives are out and it looks like they are this weeks target by our housing minister as he introduces a minimum room size for tenants.
(Estate agents take note, you won't be able to class a bedroom anymore if it's a box room below 6.5m sq).
Anyway what are your thoughts on mugshots of politicians on your rental increase notices or are you doing it anyway?