Section 24: What has it forced you to do?

by Gareth Wilson

21:20 PM, 4th November 2016
About 3 years ago

Section 24: What has it forced you to do?

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Section 24: What has it forced you to do?

I have created a thread for Property118 landlords to explain the decisions and changes they have made thus far as a direct consequence of Section 24 of The Finance (No. 2) Act 2015 which changes the rules on mortgage interest relief for private landlords from April 2017 onward. Section 24 - Landlords Views

The intention is that posts made here can serve as a duplicable source of accounts for landlords to draw upon when in dialogue with members of the Conservative Party, the Treasury, Shelter, local councils, or any other party to whom Section 24 is of relevance.

Of particular interest are the effects upon tenants generally and decisions taken with respect to tenants in receipt of housing benefit, along with the attitude of Property118 landlords towards the Conservative Party and their propensity to vote for it.

It would be particularly useful if Property118 landlords posting their accounts upon this thread could also copy and paste them into the comments section of the following post on the Axe the Tenant Tax Facebook page….

https://www.facebook.com/clause24/posts/1287685751274426

Here are a number of accounts left by landlords on Facebook for your perusal and reference:

John Saunders: “I have a tenant that has already moved on last month when I said the rent held for last two yrs will now start to go up. I have other long term tenants. ( 8 yrs plus) that will get the same news. There rent is calculated as full market. Minus 10 agent fees as I rent direct. Then minus £30 per month for being a good tenant. Not sure I can continue this discount as the tax per property will increase approx £2000 per year..They will loose out and so will I. As I can’t put rents up 20%. time to sell coming soon maybe. So that be my pension gone.”

Martin Pitick: “The tax was unannounced in their manifesto. Instead, we all attacked Miliband’s rent control pledge. My tenants pay the market rate on entry but receive no further increases (some for many years). They will all now receive massive rises in an attempt to offset the tax hike. The scary thing is that many landlords with a mix of employment and a couple of mortgaged BTLs will fall into higher rate tax which will leave them barely covering their own costs. By the time they find out what a toxic lump their mortgages are on their accounts everyone will be trying to sell and their will be a wealth transfer to the non-leveraged BTL players who will be only too happy to step in. It’s a very vindictive tax which has no effect on corporates or the rich BTL players. Given the difficulty I face and the plan I have to follow with my small portfolio I cant see how anyone with more than a handful of properties isn’t going to go to the wall and loose their pensions. You can’t just dispose overnight. The Conservatives will feel that in the marginals across the country from landlords and their tenants who will know why rents are increasing or their landlord is disposing.”

Colin Wright: “The majority of my tenants claim housing benefit. Some have been living in my houses for 10 years + and all are long standing with no top-ups asked for. I charge rent based on LHA. Rents are therefore well below market value. Several months ago I wrote to all tenants advising that rent increases are necessary and some houses will be sold. One family (who were in my house for 4 years) have already moved out and gone to live with family as they could not afford any increase at all. Another has asked for Notice hoping to be rehoused with council (good luck with that!). Some so far have agreed to a 15% rent increase which still falls below market rent value. Others have just phoned me in a panic. The vacated houses will be sold but with the capital gains tax at 28% are not going to clear mortgages of other houses. So in conclusion, people and being made homeless, others who already live on a shoe string budget are having to suffer higher rents and my pension plan is in jeopardy!
My thoughts on the Conservative party? I would rather not put into words!”

Lee Gough: “I have left the country. Increased rents and selling when vacant. Also would never vote Tory again.”

Chris Walters: “I own 39 properties full time management / repairs / Lettings etc by self and wife for last 14 years.
Owned first property 38 years!
Never increased rent to an existing tenant EVER!
Roughy 50% on some form of benefit due to limited employment contracts etc.
Longest serving tenant 9 years.
Some of my tenants are tradespeople who I provide some work for e.g. gardening / decorating / roofing.
My plan is to downsize at fastest rate possible to take into account Capital Gains Tax etc.
Always voted Conservative but will NEVER vote for them again.
Tenants told of the situation we are all facing and can’t believe what an ill thought out idea it is.
In total I provide housing for approx 70 people.
God help us all if this ridiculous Tax isn’t stopped.”

Andrew McDonagh: “Will increase rents, and have put on hold any more purchases.”

Amanda Walker-Fernley: “As tenants have handed their notice in we have converted to serviced accommodation and we’re making overpayments to reduce mortgages. Further down the line we will have to increase rents on the remainder which aren’t suitable for SA.”

Tim Donovan: “Will undoubtedly have to increase rents. Other small time landlords I know are looking into tax avoidance schemes. It would not surprise me if some are looking into tax evasion schemes, simply because the tax rules are unfair and stacked against small time investors. Good job Osborne, making it easier for rich cash buyers to get richer, while making the rest of us into struggling criminals.”

Colin Wicks: “I’ve been a landlord for 18 years without selling any of my properties in all that time. My rents are below market rate. So what happens from here on, well, my rents will go up, and I will sell some of my properties to reduce the tax take of section 24.”

Mark Alexander: “My wife and I have relocated to Malta to enable us to sell some of our properties and pay CGT only on increases in value since April 2015. We have sold three properties so far when tenants have moved out. We plan to serve Section 13 notices to several tenants in Feb 2017 to bring their rents in line with market values as of April 2017. We have only previously increased rents when tenants change. We will incorporate our rental property business partnership in April 2018 as that is the best timing for us. In our case we will be using our expat status to sell our properties to our own company as opposed to claiming Section 162 incorporation relief, as that is more beneficial to us due to CGT on latent gains that would otherwise have arisen. As our partnership will have been trading for three years as of April 2018 we will also qualify for SDLT relief at the point of incorporation under schedule 15 of the finance act 2003. To avoid the costs of refinancing we will transfer the beneficial interests in our business to our company using a Declaration of Trust designed specifically for this purpose by Cotswold Barristers. We sought QC’s opinion on this from Giles Goodfellow QC at Pump Tax chambers. He confirmed the structure is effective and will not affect the security of our mortgage lenders in any way. Cotswold Barristers checked our mortgage T&C’s to confirm we would not be in breach. As we now have the assurances of two barristers, who have put their professional credibility and PI insurance on the line, we are confident in our decisions. We now recommend people in a similar position to us to contact Cotswold Barristers. We do not receive commission from them as that is prohibited under Bar Council rules. My wife and I have also incorporated our Consultancy practice which specialises in property, finance, tax and law and will now remit our dividend income to Malta and pay only 5% tax. Screw the British Government, they forced us into this and they will now lose revenue as a result of it!”

Sam Jackson: “I have 36 properties and by year 4 will either have had to sell or go bankrupt as my tax liability will increase ten fold. My tenants have mostly been with me for five years plus and they love their homes I have not increased their rents. Their lives will be greatly affected as even if another landlord did buy my properties it’s likely the rent will go up and they won’t be able to afford the increases. So many people’s lives disrupted and affected over night by disgusting tax law that should not be made retrospective. I will not vote Conservative ever again I cannot believe they are allowing this to go forward I will be increasing rents and looking to sell. I have no choice but to do this, it is not something I want to do. The tenants I have told are devastated and worried and want to know who they can write to . I’m going to do a draft letter for all of them to sign and send and even provide them with the envelope as I believe our power here is through the tenants as they are the ones whose lives will be so badly affected.”

Phil McKuhen: “Very similar to same but with just 17 properties. I have no idea how to tell my tenants. I know they can’t pay more as 90% are dss, and have big top ups now. As I have said a quarter have care needs linked to there properties that have been adapted by social services. But at the end of the day I will have to downsize to protect the few I keep. Hopefully sell 10 and pay the mortgages off on the other 7. It’s so wrong to be putting people homes at risk because a new rule knackers business decisions I made over a decade ago.”

Paul Rawson: “10 properties. This is simple. If I can’t get the rents up to cover the tax change I will sell up. Can’t run at a loss.”

Lou Valdini: “Re-mortgaged with a view to buying more BTL, but as a direct result of a combination of changes to CGT and s.24, I have not invested, but sold one property in London (went to an older couple downsizing, not a first time buyer!). I’ve also removed another from the rental market altogether due to size of the mortgage v rental income, which shouldn’t make any sense whatsoever, except if I had continued renting, I would have ended up paying a huge amount of tax I am not paying today. Better to live there as my main home while I consider my options! What a ridiculous situation Osborne and Cameron have left the rental market in!”

David Meek: “Had several property refurbishments lined up which have just been cancelled which were intended for new tenants. Just finished our last one which now being sold instead. Regretfully had to issue an eviction to a tenant with many more in the pipeline.”

John Mcgowan: “We have already sent out letters telling our lovely tenants that we will be forced to increase our rents soon due to Clause 24 (Tenant tax) luckily our rents are all below the average market level at the moment but we will be reluctantly increasing them over the coming months. Furthermore we will be selling one property a year making people homeless out of necessity or be bankrupted. We won’t be buying anymore unless in a company wrapper. This Tory government is the worst one since the end of the second world war and we will never ever vote tory again unless they show contrition by reversing their unfair tax grab.”

Rob Lamb: “9 properties. Have give notice to all tenants to expect substantial increases in rents from early next year, solely due to the new tenant tax being introduced. If they wish to complain I have included a draft letter and the address of the chancellor and my local MP. This is a totally unfair and misguided tax.”

Tarun Bithal: “Came out of employment because PAYE earnings are not worth the effort due to the way Section 24 penalises BTL income, which unfortunately makes it pointless to earn in any other capacity due to the excessive tax burden.”

The link again to the “Axe The Tenant Tax” Facebook page is https://www.facebook.com/clause24/posts/1287685751274426



Comments

Cautious Landlord

17:46 PM, 5th November 2016
About 3 years ago

Rents up minimum 10% already. No impact on quality tenant retention.
Annual rent reviews across the board for the first time ever.
Every void now treated as an opportunity to jack the rent up to the maximum.
No more below market value rents for long standing tenants.
All remaining DSS tenant rents (only 3 left) to be increased to maximum LHA until such time as convenient to evict to then get market rent from working people.
Restructure to reduce total tax burden to lower than that before section 24 (hopefully).
Never voting for Conservatives again.

Michael Barnes

1:11 AM, 6th November 2016
About 3 years ago

I have sold one of four properties joint-owned with my wife to prevent our being pushed into the 40% tax bands; started my exit from the sector 5 years earlier than planned.

I stopped voting Tory because of their 'Right to Buy' policy. I (foolishly) voted Tory last time because I was worried that LibDems would form a coalition with Labour. It will be LibDems next time.

Grumpy Doug

13:14 PM, 7th November 2016
About 3 years ago

All rents increased 5% last September and likewise for next September. The houses are all in great shape and below market values still so I'm hoping to achieve approx. 20 - 25% uplift by 2020.
Both my wife and I jacked in our other jobs last year and started our "retirement" 5+ years early. It wasn't part of the plan but S24 forced our hands. The incremental tax hit would have been painful.
Won't be selling or buying any time soon as we're at the optimal point of income/costs.
Now paying CONSIDERABLY LESS TAX - well done George you plonker !!
Quite enjoying life and will wait and see what the current lot do before deciding on next steps.

Whiteskifreak Surrey

15:59 PM, 8th November 2016
About 3 years ago

Dear Fellow Property 118 Members:
we will definitely increase the rent, something we never do for existing tenants. We will hand over Dr Beck's Report, and some other material for them to read. Perhaps even a template for a letter to the local MP.
Of course we will never vote Conservatives again... but you know what? We said that to our mortgage broker and he actually had a good comment on that:
2 landlords like us - provide 2 Cons. votes and homes for 15 tenants. Those 15 tenants think that government eventually does something in their favour - tax the LLs. Gov will get 15 votes. So - nett 13 votes in Conservatives favour. Simple. You do the maths.
I can see here 1-2 LLs providing homes for 60+ people, who will vote conservatives thanking them for their action on LLs.
Nobody cares about anything else but staying in power.
I have said that a number of times on this forum - if we do not get tenants to back us up, nothing will happen.

James Fraser

16:27 PM, 8th November 2016
About 3 years ago

I'm not sure tenants seeing rent rises or evictions as a result of S24 will want to support the govt that brought it in.

Whiteskifreak Surrey

19:25 PM, 8th November 2016
About 3 years ago

Reply to the comment left by "James Fraser" at "08/11/2016 - 16:27":

As long as they see the relation: Government increases tax - LL increases rent.
But most Tenants do not think that way. They think they are overcharged already and the press hates LLs more than ISIS. So does the Government.
We are going to put forward to our tenants a simple comparison: cost of petrol is going up - price of food is going up as well. Insurance Premium tax increased 4% - the cost of premium increases as well. And so on...

Gromit

19:40 PM, 8th November 2016
About 3 years ago

Reply to the comment left by "Whiteskifreak Surrey" at "08/11/2016 - 19:25":

Absolutely right.

Therefore it has to be spelt out to them by spelling out how much of their rent is paid to the Government in tax. We need to start doing this now so that it establish a figure in the tenants head, and when rents are raised you can show that is purely the extra tax.

The petroleum industry has been doing this for years breaking out fuel duty, VAT etc.

James Fraser

21:41 PM, 8th November 2016
About 3 years ago

Agreed. And if anyone were at all willing to reveal such facts to their tenants, I think it is a good idea to have a chart showing where the rent goes, such as a pie or column showing rent: 800. Mortgage 550. Insurance 20. Average repair allowance: 100. Existing tax on 130 profit: 55. Additional tax to be levied: 150 (or whatever). Appreciate most wouldn't want to do this, but if you have figures that you can use to show the catastrophic consequences to best advantage, and are willing to do so, this is a good way to illustrate that we're not all greedy thieving profiteering gits.

Whiteskifreak Surrey

22:06 PM, 8th November 2016
About 3 years ago

Reply to the comment left by "James Fraser" at "08/11/2016 - 21:41":

perhaps someone would like to prepare something like that? I am useless with pie-charts and any other charts...:o(
Based on a rent 800 pcm for example? Just to show how it works - illustration only. Just to show proportions?

Tricia Collick

9:04 AM, 9th November 2016
About 3 years ago

Reply to the comment left by "Whiteskifreak Surrey" at "08/11/2016 - 22:06":

Looking above at all the landlords (and their tenants) looking at rent rises, I assume we can rely on Mark (please) explaining this could be a major vote looser to the government.
Let alone the Irish example showing it had the reverse effect to their intentions and they had to abandon it.

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