Treasury response to Section 24 report by Dr Rosalind Beck

David I was told I couldnt charge myself for managing my own properties by my accountant. But a Ltd Co is a separate entity. Accountants say no problem there. And I manage properties for other landlords. So HMRC cannot do naff all about it. And my accountant works very much within the rules and assures me that my personal tax position even if I buy more properties with my wife will not be affected by Section 24. I have extra accounting costs of £1000 for a Ltd Co but this will be offset by additional income which will not be taxed. In other words the tax I will save pays for the extra accountancy fees. Oh and I am Ltd so it gives my business more kudos and protection. Its just a bit more paperwork.

Reply to the comment left by "Sara Webb" at "17/11/2016 - 16:54":

In reference to Section 24 of the Finance Act 2015 ‘Tenant / Landlord Tax’
As private landlords we own fourteen mortgaged properties which we have slowly acquired over many years and which we rent out to fourteen families around the UK.
These properties are financed at approximately 70% loan to value, meaning that for a £100,000 property we would deposit £30,000 and borrow £70,000.
The idea of course is that the rent helps to repay the mortgage costs and enable us to maintain the properties in good quality condition, covering monthly running repairs and general cost such as new equipment, redecorating, and so forth.
Obviously this is the standard buy-to-let paradigm in which lenders have been happy to finance for many years and we in turn are suppling an excellent housing service to our tenants. We have to balance the provision of good housing to private tenants whilst making a small profit to cover mortgage interest and repairs and maintenance costs of the houses.
2017 sees the commencement of the reduction of interest tax relief which will progressively dig in over four years with incrementally additional 25% of allowance being removed each year.
When you calculate what the removal of tax relief does to this finely balanced cash-flow it immediately becomes apparent that to maintain the business status quo, the loss of the tax relief needs counter-balancing by rents having to rise sharply in a direct and proportionate response to the removal of the relief. If this was not carried out, then not only would there be significantly reduced funding for maintaining properties; the entire portfolio would become loss-making and go bankrupt.
The problem is that after four years our property income tax bill will be in the region of an extra £24,000. With fourteen properties that requires rent to increase per property by an annual average of £1,714. This is a £142 per month increase for each tenancy (some of which are currently only £525 per month). Only by doing this can we ‘stand still’ – that is, maintain the same business and service that we currently provide.
Incidentally, on a technical point, HMRC's rule book states that 'tax deductible expenditure must be incurred wholly and exclusively for the purpose of the trade, profession or vocation’.
In this case the presence of mortgage interest cost would fulfil that criteria.
Many of our tenants are long term renters who have no wish at all to get involved in the purchase of a property. Some are retired. Some are not well. Or sometimes a tenant already owns a property and they rent that out whilst they live on one of ours, using the rent income from their property to finance their rent to us. Other renters are unable to obtain a mortgage due to the cost of the area, but want to live in the area where we have properties, for family reasons or work opportunities, so they decide to rent. Many people actively do not want to buy and very much enjoy having all the monthly expenses of repairs, gas checks, new kitchen equipment, redecorating and so forth covered by us. Some are too elderly to move and certainly would not be remotely applicable for a mortgage, and nor would those tenants wish to be so burdened. So we know that Section 24 will hurt tenants as well as landlords.
They are a myriad reason why people choose to rent and very many are very happy to be in that position and they tell us renting does confer many benefits to them.
It is very upsetting to have to face this issue. If we cannot raise the rents sufficiently then many of the properties will have to be sold to reduce the mortgage interest costs. We have fixed mortgages with swingeing exit penalties for early repayment which would be yet a further blow. This will also upset many tenants who think they have a place for life or at least for the foreseeable future. They will have to uproot their children, refer to the council for housing, have their lives upturned, and one is somewhat puzzled as to the overarching purpose of all this upheaval.
As buy to let properties are sold off, the reduction in available rented property will follow the laws of supply and demand, rising rental prices for scarce assets. And those buy to let dwellings that remain will raise rents to counterbalance the withdrawal of tax relief and to maintain financial viability.
Section 24 will inadvertently cause huge distress to tenants and huge distress to landlords for no perceivable benefit to either party, or indeed anyone else.

Reply to the comment left by "NW Landlord" at "18/11/2016 - 10:01":

Please don't shoot me, I'm only the messenger! It is in fact exactly what the big corporations do and they get away with it, but they have more expensive lawyers.

Great post and is the story for every portfolio landlord around the country HMRC local councils won't know what has hit them

Reply to the comment left by "Gary Nock" at "18/11/2016 - 10:12":

We are a little off topic here, I do exactly the same as you do save that half my properties are in personal names and half incorporated. I was advised by my accountant many decades ago to hedge my bets as the government was continually changing the rules and you could never be sure which was the best option. When I formed my management company, Fawlty Flats Ltd (yes it's real look it up on Companies House website), my new accountant advised me to be sure to manage other owners property in addition to my own, hence my previous comments.

Ross, I had same response when I wrote to Philip Hammond few months ago and that was without sending any report but I had only sent a lengthy self explanatory email. I then responded back to Philip Hammond expressing my dismay that the response I had received from his colleague was embarrassing and standard.

I then received another response which was slightly better however it still did not deal with specific points I had raised. Yesterday I have written to Mr Hammond third time.

If you like I can send it to you via email.

Unfortunately the biggest problem we face is summed up rather succinctly in the response.

Property purchased as buy to let is looked on by the government as an "investment" such as shares, rather than as a business!

That comment absolutely makes my blood boil who are they to say that spend a week with me managing my 70 odd properties and see if it isn't s business just spent weeks doing my accounts have lads on the road all the time fixing repairs constantly my own Lettings refurbs......shares don't make me laugh

Reply to the comment left by "Dr Rosalind Beck" at "18/11/2016 - 09:42":

Hi Ros

I was absolutely furious yesterday after reading the response from the Treasury to your very through & comprehensive report. It's beyond my comprehension how they (The Elite) can carry on spouting the same UBSURD SOPHISTRY . After reading your report any normal REASONABLE human being - can-not help but see the overwhelming evidence against this unfair manipulation of the Tax system. This is an absolute ABUSE OF GOVERNMENTAL POWER based on Deductive Fallacy.

I'm not going to respond to Para 1-5 & 7 of this letter as you've (We've) already done that - time and time again, HOWEVER in response to Para 6, 8 & 9

Para 6 : Presumptuous Presumptions & Assumptions Again :-
Please let me know how & where to send the Case Studies for my self & my 3 other partners -

Only one of my partners is currently a higher rate Tax payer - But we will all be grossly affected. If the post 2020 rules were applied (based on YE: 2015 figures). I will be pushed into the Higher Rate Tax band, I would lose any child benefit payments, If / when my son decided to go to Uni the calculations for his University Loan will be based on my fictitious earnings & my overall Tax rate would have been 103.95% of my total income. - Please note this is TOTAL INCOME - Not just income from property - BEYOND LUDICROUS - This would have meant that after having worked full time all year - I would have had to pay HMRC, ALL of my income for the whole year and would still have owed them £504 pounds. Incase anyone thinks that I must be highly leveraged - My portfolio currently stands at 56.10% LTV & I have invested over £350K of my money into this Business.

Para 8 - of the response from the Treasury regarding the differential treatment for Holiday Lets - states that this is in-order to facilitate the tourism industry in the UK.

My business model facilitates Workforce Mobility in the UK - which we are told on the one hand - by the government is of vital importance - (especially in the healthcare sector). Some of my tenants, include Junior Doctors, Nurses, PHD scientists, IT professionals, Interns, on placements etc. on 3-12 month contracts. I also follow very stringent rules & regulations and my properties are available for Lettings for 365 days of the year & I offer pretty much all the facilities of Holiday Lets - (Except hair-dryers) ???

Re Para 9 : The failed Irish Experiment - Again Ros you have dealt with this
HOWEVER - I would like to challenge the Government (Treasury) to supply at least one other example of a country where this type of Taxation has been applied successfully.

In the words of Councillor James Fraser :

"WHERE’S THE CONSERVATIVE IDEOLOGY ?"
taxation in excess of 100% of earnings, is 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.???

On our part - The Definition of insanity is doing something over and over again and expecting a different result.

1) Personally I think we now need to STOP trying to appeal to Phillip Hammond and our individual MP's (They are obviously not interested). & they'll just keep regurgitating more of the same NONSENSE. I feel we need to now ask for a response directly from TERESA MAY.

I have joined the Conservative party and have just received an email from them that says the following :

Quote
As the Prime Minister said in her speech, this is a moment in our history that requires us to respond and to reshape our nation once again - to spread opportunity to every person in our country, to be a global, outward looking nation and to build a country that works for everyone.
Conservative Party members are at the very heart of that mission. And with Labour such a threat to our country, we cannot afford to be complacent. And we know that you won’t be.
WE WANT TO HEAR YOUR VIEWS
Together we have the ideas to take our country forward. We value your opinion and we want to hear from you directly about the issues that are most important to you.
UNQUOTE

I'd like to know know your thoughts regarding this ??? Or any other idea's of how we can get our message - directly to Teresa May ??

Also

I've just found again - The "Written evidence submitted by Councillor James Fraser, Stevenage Borough Council (FB 73) - From the 14th of Oct 2015.

http://www.publications.parliament.uk/pa/cm201516/cmpublic/finance/memo/fb73.htm

I think this is very important as this was written before most of the current establishment were in their current positions of power & it is a basic summery of your report but ( As I've previously mentioned ) has a very good section titled " WHERE’S THE CONSERVATIVE IDEOLOGY? + DEBT does not = WEALTH. +

‘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, actual not virtual, 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.

Don McLean's Lyrics come to mind :
" They would not listen, THEY DID NOT KNOW HOW"
"They would not listen, they're not listening still"

I agree about lobbying waste of time energies should be focused on your own affairs as these puppets are a waste of time. The only time they will listen will be when the damage is done and people will say told u so