Tag Archives: Finance Bill Committee 2015 – Landlords Submissions

Tenants hit by landlord tax plan Latest Articles, UK Property Forum for Buy to Let Landlords

Written evidence submitted to The Finance Bill Committee by Kathy Miller and her tenants (Mr and Mrs Levy, Mr and Mrs Bennett, Mrs S James and Mr C Wigmore) (FB 05) IGNORED! Tenants hit by landlord tax plan

Submission on the ‘restricting deductions for finance costs related to residential property’ decision announced in the Summer Budget: ‘What about the tenants?’

1. Introduction:

1.1. My background is that I have been renting out properties since 1998 and over the years I have built up my portfolio of 40 properties, ranging from 1 bed flats to 5 bed detached houses, and as such I cater for a wide range of tenants’ needs. I work with the Housing Department at the local council who are always especially desperate for 1 and 2 bedroom properties. My tenants include those on full benefit, the low paid in receipt of top-ups and full time workers. Many have been with me for 5 years; my longest tenant has been with me for 14 years.

1.2. My view is that my portfolio is a business and I started it to become self-sufficient and to provide an income in later life. My yields are low due to house prices in the area where I operate. I maintain my properties to a very good standard and use local trades people on a regular basis. I am one of the larger landlords in my town. Many of my tenants would not be in a position to buy due to low wages; some do not wish to buy and they like the fact that they can ‘phone me when the boiler breaks down, for instance. I thought that the Government was encouraging measures that meant renting a property was as secure as buying your own home. It seems I was wrong.

2. Summary:

2.1. This submission focuses on the impact of the above policy for tenants in the private rented sector. Tenants have been rendered invisible in the documentation related to this proposal and the aim here is to present my point of view as a portfolio landlord and to give tenants a voice; our fates are somewhat intertwined.

2.2. There has been much emphasis on owner-occupiers and the Government’s aim to increase the number of people who own their own homes. I believe this emphasis is unbalanced and serves to discriminate against the interests of many tenants who do not have the aim of owning their own home and maybe never will and for whom an efficient, effective and secure private rental sector is essential. The decision of the Government to heavily penalise landlords with an unfair tax that would probably be unique in the advanced world and which will lead to rent rising and evictions as their businesses are rendered unsustainable is going to have a damaging effect on thousands if not millions of tenants. Many tenants are now worried, as they have seen the evidence that landlords intend to increase rents and or sell up to cope with this attack on their businesses. Estimates of likely rent rises in the short-term range from 12 to 15%. Landlords do not want to increase rents, but the Government is forcing their hand. This will become more acute as interest rates rise, because the Government is re-defining interest payments as landlords’ profit (a very bizarre and unfair concept). This is a ticking time bomb for portfolio landlords like myself, especially.

3. Some perspectives of tenants who rent my properties:

3.1. Mrs Bennett

‘My husband and I have been tenants of Mrs Miller for 5 years. This is my 2nd marriage and my new husband works full-time on the minimum wage. I worked full-time until Feb 2015 when I had my baby. My husband has two children from a previous relationship whom he supports in addition to our family. We will never be able to buy in the area we live with our low wages and the high house prices. I have been on the council waiting list since June/July last year. Our home is overcrowded and we need a 4/5 bed house, but my landlord has nothing available and rarely does due to the high demand for rental properties. I am stuck.
If landlords are forced into selling then the homeless situation will be off the Richter scale. Where are we to go? The remaining landlords, if there are any, will increase rents which we would not be able to pay.

3.2. Mr and Mrs Levy

We have been tenants of Mrs Miller for 8years. My husband works full-time but the salaries are low in my area; we will never be able to afford to buy and are very happy renting. There are a limited number of houses at the moment to rent and the council stock of 4-bed-plus houses are in great demand due to cuts in other areas. This will only increase when the income for people on sole benefits reduces from 26000 to 20000 in 2017. I would say there is a need for more private rented housing not less. We all know that no new housing will be created by the decision and/or be available at the point when I am given notice by my landlord, and if owner-occupiers buy up the houses which are put on the market in my area, then that will mean less housing availability for tenants like me. Also, if limited companies or large corporations buy the housing stock which becomes available, I don’t know if they would consider me a suitable tenant, what they would charge, whether they would have hefty fees and so on. My current landlord has allowed me to move to other houses she owns from time to time and there has been no cost. I feel that the Government is showing favouritism to people who can afford to buy over and above those of us who will never be in that position. It is so unfair.

3.3. Mrs James

I am so alarmed by this government’s proposals. I cannot see how this will help the rental market and tenants like me, I never will be in a position to buy. I absolutely love my house and where I live, I am a long term renter ( 9 years ) and single mother of two. If my landlord is forced to sell my family’s lives will be uprooted. How many good landlords will be forced to sell up or go bankrupt? My landlord has many properties within the town I live in; are the council ready for hundreds of people expecting to be housed? This will push rents up and reduce much needed supply. The reason I am renting privately is because the council have very limited availability. What happens if I can’t afford the rent increases? I also wonder what will happen to other groups and individuals who are not in a position whereby they want to buy a house any time soon. There will be many thousands of students, young professionals and migrant workers all over the country who rely on renting from private landlords.

3.4. The view of a local builder, Mr C Wigmore

I do not rent from Miss Miller but I am in rented private accommodation. I am 57 years old and I price for jobs on many of Miss Miller’s properties. Not only am I worried about keeping a roof over my head which is one of the very basic needs along with food, but I still have at least 8 years left of my working life. If there is a massive exit from the rental market it will affect local trades like mine. The proposal although I am sure was well intended will do nothing for the economy. All I see is job losses, homelessness, increased rents if you’re lucky to find somewhere to rent, and in extreme cases depression, family breakups and suicides.

4. Some facts and figures regarding renters who are not in a position to buy include:
4.1. There are approximately 3 million full and part-time students in the UK. Despite the growth in the purpose built student housing market, the traditional private rented sector retains the largest share of the student accommodation market at 29.4%, so 882 ,00 students in total . Were these (often larger) homes where they currently rent, to be converted into owner-occupier homes, where would the students live?

4.2. With regard to migrant workers: The number of EU-born workers in the UK is more than 2 million (according to ONS figures). In total, 4.9 million foreigners are employed in the UK (almost one in 6 of the 31 million strong workforce). A large number of these rely on private landlords for their accommodation. These people contribute to the UK economy and need somewhere to live.

4.3. Because successive governments have sold off many of the council houses and the current Government intends to extend the Right to Buy to those living in Housing Associations, what will happen to another group which has been heavily dependent on renting from private landlords, namely the unemployed and the low-paid – including single people, couples and families, the elderly, the disabled and so on? If landlords sell up, where will they live?

4.4. There will also be others who choose to rent for various reasons, not least job mobility.

4.5. Others may be aspiring first time buyers, so may be able to take advantage of the landlords forced to sell. So it is possible that a minority of people will benefit from this mass disruption of the private rented sector. Again, I point out, this is unfair.

5. I would like to suggest alternative proposals:

5.1. Build more houses, including encouraging private landlords to build more homes through tax incentives (rather than punitive taxes which make their businesses unsustainable). There are many small infill sites which could be used for an additional house if the NIMBYS didn’t object to everything near them.

5.2. The Government could allow roll-over relief for landlords, which would free up houses for people to buy. It is landlords who often buy up the houses which are in need of renovation and sometimes are not initially mortgageable, which first time buyers would be unable to purchase.

5.3. Make better use of existing housing. This may include tax incentives for older people to downsize and also introducing tax incentives for landlords to create more high-quality HMOs, which make good use of limited housing and are also good for the environment (use of lighting, gas etc for 6 renters is more environmentally-friendly than lighting and heating a house for one or two owner-occupiers).

5.4. It is essential to understand not just the issues of tenant affordability, but also to appreciate that landlords have to make a return too. If landlords find they are not earning anything from their properties (and according to a recent Shelter and Strategic Society Centre report, 21 per cent make no profit; source: Understanding Landlords: A study of private landlords in the UK using the Wealth and Assets Survey) they are likely to exit the market. This must be discouraged at all costs, as the number of households waiting for a social/council home is over 1.6 million (source: Shelter Housing Databank), making the only form of tenure left the PRS; it is essential that this sector remains affordable and viable.

5.5. It is important to remember that shifting people from social housing to the PRS was the result of the Right to Buy Legislation introduced in the 1980s and it is this which has caused a very significant reduction in the supply of social housing throughout the UK. Bizarrely, although successive Westminster governments have supported Right to Buy, lately this has led to reports and rhetoric accusing ‘greedy’ landlords of profiteering from the tax payer by taking billions via housing benefits. What this accusation ignores is that this was driven by government policy and in return for this money, landlords are saving the taxpayer the need and cost of building social homes, and incurring the costs of funding and running these properties. Unlike social landlords, private landlords do not receive subsidies for providing this service. Indeed, private landlords are heavily taxed both in terms of income and capital gain. This reduces the burden on the tax payer. With a benefits cap being introduced to reduce the housing benefit further we now have a dilemma in the PRS, as the sheer cost of providing accommodation versus the rent tenants on benefits receive, in some areas, means affordability issues for both the tenant and the landlord.
The Scottish Government has recognised the supply problems that have been caused by Right to Buy and has introduced legislation which will bring the Right to Buy to an end from 1 August 2016.

6. The landlord’s perspective: what this means for me and how it will change my business completely, put in jeopardy everything I have worked for (I will no longer be able to pass my business on to my daughter, as it will be made unviable):

As a result of this legislation, my tax liability will increase from 2015 to 2021 by £38,233 which is an increase of 250% due to the finance interest restriction. If the base rate increases to 3.5% then I will make a loss of £88,591, but will still face a tax bill of £23,490 leaving me with a total loss of £112,081. These are actual figures supplied by my Accountant. The decision will be catastrophic for me. It is absurd that any business should pay tax when they make a loss. (I asked how many of my Accountant’s clients are affected by this and he said that many are – even the ones with just one property.)

6.1. My options now, as I see them, are:

• Start evicting tenants now and sell up all my houses.
• Look at the possibility of incorporation (but because of CGT and SDLT it is probably not worth it).
• Emigrate to avoid bankruptcy (as CGT will then not be payable).

Conclusion:

This proposal has created great uncertainty for me and for my tenants. I urge the Government to reconsider and realise the terrible human cost of this outrageously unfair tax change.

August 2015


Conservative Councillor hits out at ruinous landlord tax plan Buy to Let News, Landlord News, Latest Articles

Written evidence submitted to The Finance Bill Committee by Councillor James Fraser, Stevenage Borough Council (FB 73)landlord tax

LANDLORD TAX – THE RUINOUS EFFECTS OF CLAUSE 24

PART1: THE BACKGROUND
PART 2: WHERE’S THE MODERATE IDEOLOGY?
PART 3: LANDLORDS AS DISNEY VILLAINS
PART 4: THE ACTUAL TRUTH
PART 5: THE STRANGE MYTHS OF LANDLORDING
PART 6: THE EFFECTS OF CLAUSE 24
PART 7: SO WHAT CAN BE DONE?

THE BACKGROUND

1. I am an elected councillor, formerly of both Stevenage Borough Council and Hertfordshire County Council, currently with some responsibility for Planning. I hold a degree in Politics & Economics, have been a former Army officer undergraduate and for the past nineteen years have been a professional provider of private housing and trainer in the best practices for the private rented sector. I had responsibility for housing on SBC as deputy chair during my last stint in office.

2. Since this bill was announced, there has been a growing public outcry against it, as people have gradually woken up to its severe implications, and I wanted to ensure that you as a committee member are fully aware of those implications. Currently, few people are aware of the catastrophic consequences awaiting the housing sector if this goes ahead but you’ll get to hear a lot more about this from an increasing number of people once it is more widely understood what the consequences will be. So far, the National landlords Association, the Residential Landlords Association, the Council of Mortgage Lenders, the Institute for Economic Affairs, the Institute for Fiscal Studies, the Conservative think-tank Core Policy, The Telegraph and many concerned landlords, tenants, agents, economists, and academics have spoken out against this ruinous policy which is contrary to all established taxation practices, contrary to principles of natural justice, and is one of the most anti-business proposals ever considered.

WHERE’S THE CONSERVATIVE IDEOLOGY?

3. A very large number of landlords – the vast majority, I expect, of the 2.1m thought to be in operation – would have voted Conservative at the last election. We have always traditionally seen ourselves as natural bedfellows, with the private sector, business, support of the individual investor, low taxation and freedom to expand private enterprise as core Conservative ideologies. Landlords are moderate people, planning for the future – nothing in Clause 24 assists or endears them, and willingly betrays those who thought they had a fair and moderate government they could trust and believe in.

4. Clause 24 willingly and deliberately embraces the beliefs of the hard left – taxation in excess of 100% of earnings, the driving from business of an essential private service, the extreme dereliction of wealth hard-fought and legitimately earned. No politician of any colour has ever thought this is a workable or realistic policy – it was recently described as being like something ‘from a third world country with a lunatic dictator’ – so we are utterly stunned that any moderate government should be the ones to try to implement it.

LANDLORDS AS DISNEY VILLAINS

5. There are so many untruths being perpetuated about this Clause, and landlords generally. We are used to being the most hated people in society –only bankers and paedophiles seem to keep us off the top spot – yet so much of the media hysteria about the housing market is provably and factually untrue. We are consistently portrayed as some sort of Disney villain, sheltering in some rain-soaked castle on a distant mountain whilst rolling around in untold riches, laughing raucously at the poor and misery around us. The media happily perpetuate this myth of rapacious greed. Only two weeks ago, ‘Moneyweek’ magazine produced a column about landlords entitled ‘Making money out of misery’ which went on to contain so many factual errors (that would have been obvious even to a lay-person), that one had to conclude they had made the whole thing up and passed it off as reality.

THE ACTUAL TRUTH

6. In truth we run businesses providing quality homes to a wide variety of people who cannot or do not want to buy for a wide variety of reasons. In my case, I run a permanent 24/7 on-call policy, I spend all day administering, visiting, repairing, and running a full refurbishment outfit where I am hands-on and at the very centre of the housing provision. I have excellent relationships with all of my tenants, many of whom have been with me for many years, some of whom have left and decided to return, and at least two who left for that holy grail – a council house – only to later ask if they could return to my far superior houses and level of personal service! I take poor, damaged housing that few people want and turn them into high quality refurbishments that are desirable and in huge demand from people looking for a high-quality home with full provision laid on.

7. My own contribution to the wider economy, as with many landlords, is immense. I employ multiple tradesmen on a regular basis, occasionally letting agents, estate agents when buying or selling, and, most of all, I have a regular programme of refurbishment, where each house receives around £20,000- £25,000 each and every time it needs refurbishing. This is money that is put directly through the tills of my local hardware stores which keeps staff, kitchen fitters, plumbers, bathroom manufacturers, electricians and all manner of manufacturers in business. Such thorough repairs and refurbishments will inevitably cease if I can no longer afford to carry them out.

THE STRANGE MYTHS OF LANDLORDING

8. The government makes some strange claims that are provably false. Let’s take a look at these myths individually:

8.1. ‘It is an investment – like shares – not a business’
Anyone who says this, or thinks this, has quite clearly never been a landlord, and they’ve certainly never run a housing business. For the vast majority of people trading in shares, they need do nothing more than press the ‘buy/sell’ button at appropriate times. Indeed, the very nature of shares is that someone else is running the business. The investor is not expected to have an involvement. For even the smallest of landlords, there are endless preparations, and every day of their business life they are subject to legislative and regulatory adherements that require an ongoing commitment to another person or family. For portfolio landlords, every day is a full-time occupation of responsibility, with paperwork, phone calls, visits, meetings, financing, services to be provided, repairs to be made, court cases to handle, and for me, full time and expensive provision of totally refurbished properties taking anything up to £25,000 per time of further investment and management, all of which is hands on and an integral part of my working day.

With shares, having a regular, full-time job is expected and usual. As a landlord, it is next to impossible to have any other full-time work and maintain the professional commitment to your business and your tenants.

I also look forward to the day that property can be held in an ISA!

8.2. ‘Only 1 in 5 landlords affected’.

The truth is that most landlords with finance in place – which is the vast majority of them – will be affected. Expert opinion puts this at 60% of the 2.1m, or one and a quarter million landlords. Even if, as is suspected, the government means only 1 in 5 will be facing severe difficulty or bankruptcy as their tax bill rises, often to exceed earnings, this still means 400,000 private individuals being forced into untenable situations simply for pursuing a much-needed business or for providing themselves with a decent pension. If they only housed one person each, that’s 400,000 renters potentially looking for a new home in a shrinking market. The real impact though is that the landlords being targeted in this grossly unreasonable way are the professional, portfolio landlords, so having one tenant each is wishful thinking! If they only had 5 houses each, that’s anywhere from 2 million people upwards, including children, looking for a new home. As a local councillor, I can assure you they will in large part be heading for the local council for support, which simply cannot be offered or provided.

8.3. ‘It’s government ‘genorosity’’ and ‘only the wealthiest landlords are affected’
The wealthiest landlords – the truly wealthy in this country – are usually unfinanced and therefore remain completely unaffected. The landlords that are the most affected, with the prospect of having their entire businesses and wealth effectively confiscated by the government, are the less well off, middle class, working, portfolio holders. Most of these are professional landlords with full time businesses, but we are also talking about potentially destroying the finances of public servants, nurses, doctors, teachers, train drivers, book editors, driving instructors, the retired, and a vast range of ordinary people in ordinary jobs who have invested wisely for their futures. The government says these are ‘wealthy’ people, which neatly plays to the media headlines hungry for a property scapegoat, when the truth is that DEBT does not = WEALTH.

Hitting those with the most borrowing and calling that a taxable EARNING is beyond ludicrous, and something no Conservative – or ANY moderate and right-thinking government – would ever understand as reasonable behavior.
The comments about this being a case of ‘generosity’ to the wealthy are also highly offensive and ill-informed. There is nothing ‘generous’ about a business expense. No so-called ‘wealthy’ retailer, industrialist, manufacturer or service provider is being spoken of in these terms yet they all get identical tax treatment. Why are landlords the scapegoat yet again?

8.4. ‘A fairer tax system’

Taxing debt is not fair. Paying tax rates greater than everybody else, simply because of the business you are in, is not fair. Getting taxed at rates of anywhere between 100 and 156% of earnings, with the inevitable bankruptcy, is not fair. Distorting tax so that lower earners pay more, or get forced into higher tax brackets on non-existent income is not fair. Taking away personal allowances as people on moderate incomes are hit for additional-rate tax is not fair. In fact, the only thing that is fair is the CURRENT SYSTEM where everyone gets taxed the same affordable amount on their profits. This is the only way that everyone is treated equally – singling out a landlord for extreme treatment is DISCRIMINATORY and is fair to no one. Some of these affected landlords with day jobs are being advised by accountants to GIVE UP THEIR JOBS in order to try to protect their earnings and tax band. It is a sickening situation for normal, hard-working people to be forced into this predicament.

8.5. ‘Landlords have an unfair advantage over owner-occupiers’

Owner-occupiers do not pay CGT. They do not pay tax on room rentals up to £7,500. Landlords have to find 20-25% deposit as a minimum, owner-occupiers only 5-10% typically. The IFS has said landlords are far more heavily taxed already than home owners or commercial operators. I have bid on 15 houses this year and been outdone by a first-time buyer or established owner-occupier on every one because they don’t have to factor in business expenses in providing the home to someone else, as landlords do. Most importantly, landlords pay tax on their earnings – sometimes large amounts of tax – which will stop if they cannot continue in business.

8.6. ‘Landlords are responsible for high house prices’

This is one of the most bizarre beliefs, but it is constantly perpetuated. The official, academic studies show that of the last 150% rise in house prices, around 7% is attributable to the private rented sector. According to the ONS, house prices have doubled in this country every seven years since 1948. It sounds incredible, but it is true, regardless of boom or recession, the average has always advanced thus. Since consumer buy-to-let only arrived in 1996, how do you explain the exponential rise over the previous HALF A CENTURY? And since the graph of house price rises continues on the exact same trajectory both pre- and since 1996, it would seem that the private rented sector has had a far less impactful effect on house prices than is often perceived by the public and the editors looking for a sensationalist headline.

8.7. ‘Landlords might destabilize the housing market’

At 19% of the housing stock, and 14% of current mortgage lending, it seems somewhat strange to single out this minority group as the cause of any future instability. Traditionally, landlords have never caused instability, and many of us have factored rate rises into our calculations, as mortgage lenders already do. Most of the long term professionals were trading during the times of 15% rates, and even since 1996 my earliest mortgage rates were 8%. The mortgage lenders have always seen landlords as a safer bet than home owners which is why the lending on these types of business is so popular. What definitely WILL destabilize a relatively secure market is bankrupting or forcing out of business most of the professional operators! A strangely ironic position, don’t you think, considering the government’s claim that this is what they’re trying to avoid?

8.8. ‘Landlords are greedy and selfish’

Really? Apart from the fact that most make only modest returns – 1-2% net is typical – 21% make no profit at all and use their asset value as a long term savings plan or pension. In my case, my refurbishment costs mean my real return on most properties is a negative figure. Also, the large majority of the landlords I am associated with are far more likely than a Local Authority or Housing Association to offer real, proper help and advice, including writing off debts, lowering rent and assisting tenants with all manner of personal issues. I enjoy housing people, taking an interest in their lives, seeing them grow and prosper. Comments to the contrary are just offensive and ill-informed.

THE EFFECTS OF CLAUSE 24

9. Large numbers of landlords are facing bankruptcy. The maths do not lie. It IS that serious and any politician who thinks this is a good idea urgently needs to re-read the facts above.

10. Tenant evictions will gather pace and possibly reach unsustainable proportions. Some landlords have already started on this process. I have already started meeting with my tenants to inform them of their new situation. They are shocked and upset. Where will they go, in a rapidly shrinking market?

11. Those that can find houses for rent will also find the basics of economics apply, namely that a short supply with expensive costs makes the price high. No landlord I know wants to raise rents, nor evict people, but it is an absolute inevitability. If you think differently, please tell me why.

12. A large number of innocent people will now fall foul of child benefit payments, or be moved into a higher tax bracket despite earning no more income. Freedom of Information requests from HMRC PROVE that they have no idea how many landlords are to be affected, how many tenants or properties will now be at risk, how many people will move tax brackets, nor how many people will lose child benefit. NO IDEA. How can any policy seriously proceed on this basis?

SO WHAT CAN BE DONE?

13. Luckily, there are a few options available:

13.1. Make the new legislation applicable to new mortgages taken out from April 2017. This way the government still gets its plan but existing portfolios are not targeted and landlords who might have spent two decades building for their family’s future are not dragged into hardship and even state dependence themselves.
But better yet…

13.2. Only apply the new restrictions to bad or unaccredited landlords. Those who can prove accreditation, or that they have all the relevant certifications and standards in place, can continue on the existing system. Many local authorities are already signed up to the national scheme run by the NLA. This benefits the government in that they can still launch this plan whilst simultaneously forcing the ultimate raising of standards on all landlords, which in turn benefits all tenants and everyone in the private rented sector. It also neatly solves the problem of trying to determine whether someone is a ‘professional’ based on number of properties/number of tenants/turnover/earnings etc etc which various governments have seen as a problem in deciding how to professionalise the sector. This, I feel, is a brilliant plan as it solves several problems whilst creating no real down sides.
But better yet…

13.3. Scrap Clause 24 altogether and save landlords, tenants, related trades, the economy and various others whilst still taking the income tax, VAT and ongoing CGT we provide the exchequer with!

Many thanks for reading. Please stand up for your voters, and what’s right as an elected official of a democratic and moderate government. For evil to triumph it is only necessary for good men and women to do nothing!

October 2015


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