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9:05 AM, 1st December 2015, About 8 years ago 53
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The Chancellor of the Exchequer’s 2015 Autumn statement put me in mind of a scene from the epic television series Game of Thrones.
In the scene, a musician, captured for making mock of the fatal goring by a wild boar of the former king of Westeros Robert Baratheon, is being forced to re-perform his offending material before the new king, Joffrey Baratheon, and his court.
Upon completion of the final line of the song – “the lion ripped his b*lls off aaaaand… the boar did all the rest” – the boy-king Joffrey leads an applause of the performance and then openly toys with the musician as to which body-part to have amputated from him as punishment.
When the musician begs “Every man needs hands your Grace”, Joffrey merely smiles and chirps back “Good… tongue it is.”
My memory of this scene was triggered at the point of the Autumn Statement when George Osborne recalled being told of the unfairness of restricting mortgage-interest tax-relief for individual landlords. It was from this point in the speech, with barely-concealed mocking reference to such unfairness, that the Chancellor then proceeded to announce a 3% Stamp Duty surcharge on landlord house purchases: gutting and making yet further example of his chosen scapegoat before the Nation.
But at least we could presume in Game of Thrones that the poor singer got to keep his hands. Furthermore, the Osbornesque small print to this policy is that commercial property investors, with more than 15 properties, are expected to be exempt from the new charges. So rather than correcting the disparity in treatment between individual and corporate landlords, the Stamp Duty surcharge is set to exacerbate it. The twist to this “fair” announcement is therefore as dishonest as it is vindictive.
Based on the letters I have sent, and the letters sent by other parties that I have read, explaining the very unfairness of restricting mortgage-interest tax relief to which Mr Osborne was no doubt referring, I feel that I can be sure (as can you) that such correspondence would also have detailed the inevitable drastic social consequences proceeding from the measure. These being of course, higher rents, evictions and untenable pressure upon the waiting lists of councils and housing charities.
That George Osborne’s response to such dire concerns, was to be inspired to dry mockery and announce yet another tax-raid upon landlords livelihoods, is just as great a reflection upon his overall character as a person, as it is towards his specific attitude towards buy-to-let landlords. Or to put it another way, it is just as much an indication of his conduct as an eventual Prime Minister than a display of his current conduct as Chancellor.
So putting aside the obvious disastrous effects of Clause 24, what will be the favourable outcomes for George Osborne and the Government of its implementation? Will it solve the disparity between the demand and supply for homes in the United Kingdom? No it will not, because this disparity is the cause of population (demand) increasing at a faster rate than the construction of new homes (supply).
Shall tenants benefit from a so-called “leveling of the playing field” between owner-occupiers and landlords, by becoming owner-occupiers themselves en-masse? No they will not, because the overwhelming majority of people who rent do so because they NEED to: they need rental accommodation because they are either, too early into their current job to be sure of their position far enough into the future, working temporarily in the UK or a particular part of the UK, or prevented by unemployment, restricted working hours, single-parenthood, illness, disability or a poor credit record from being able to buy a house. It is true that such people will be shifted out of the private rental sector by Clause 24, but not into their own houses. They will be shifted into the spare rooms of their parents, onto the sofas of their friends, and on to the waiting lists of councils and housing charities. Clause 24 cannot therefore have been designed with their welfare in mind.
Shall the measure stimulate increased tax revenue? Yes… at least for as long the rump of the buy-to-let landlords it is targeting can remain afloat. But if the motivation of Clause 24 was to generate much needed finance for government spending, why isolate it to individual buy-to-let landlords? Why not levy such further taxation upon rental incomes across the board, raiding the deeper pockets of corporate and cash buyers? After all, aren’t these parties the most able (or should I say “the least unable”) to pay? Should not those with the biggest shoulders assume the heaviest burden? In relation to personal income tax, this mantra has been parroted by Tory ministers for as long as we can remember. So why anomalously discard it when taxing rental income? Why indeed…
Shall wealthy corporate landlords/companies, with significant lobbying power and the potential to donate large sums of money to the Conservative Party, be gifted an unfair advantage and empowered to replace smaller individual landlords upon their being taxed to absolute financial ruin? YES THEY SHALL, because Clause 24 grossly and specifically inflates the tax-liability of individual landlords with buy-to-let mortgages: namely the working and middle class landlords who do not fall into the aforementioned category and who possess negligible inducements with which to buy political influence.
The social consequences of Clause 24 have been made clear to George Osborne by many landlords and by a growing minority of media commentators choosing not to bandwagon. Furthermore, owing to Mr Osborne being an individual of above-average intelligence and no less than The Chancellor of the Exchequer of Great Britain and Northern Ireland, the notion that he would not already have been aware of Clause 24’s social consequences prior to its inception is highly unlikely. Given these rather obvious circumstances one can only conclude that in the Westminster playground he inhabits, the fulfillment of vested interests are a higher priority to George Osborne than cries of upheaval and pain from the country at large: a priority high enough to warrant stabbing a substantial section of his party’s voters in the back for its preservation.
Through the Finance Bill 2015-16 we have learned of George Osborne’s willingness to heartlessly exploit an extremely ill-informed media bandwagon and to persecute landlords for his own political gain. But we have also learned that honesty, integrity, morality and public service – qualities essential to a political leader – are qualities of which the Chancellor is not in possession. In showing himself to be desensitised, backstabbing, mocking towards the suffering of people, and willing to manipulate the fiscal levers of government in preference of vested corporate interests, George Osborne has demonstrated why he must never be allowed to become Prime Minister of this country.
With that in mind, I believe it is time that we prepare to say “no” to George: I mean really say “no” to George. This means that as well as signing the online petition to reverse Clause 24 https://petition.parliament.uk/petitions/104880 every landlord should register as supporters of the Conservative Party to become eligible to vote in its eventual leadership election https://www.conservatives.com/join If we are persistent in promoting this idea to as many landlords as possible via as many channels as we can, between now and the close of David Cameron’s tenure as party leader we could have a great many people able to influence the outcome of the final ballot. Were Mr Osborne to be aware of this activity in the run-up to his leadership campaign, he may just realise the extent of this grave policy error and the very real, political cost to himself of enacting it. If however, we remain dissatisfied with Mr Osborne’s performance and decision-making, we can all vote for his rival in the contest, thereby discovering if he is even half as amusing towards losing as he was in the Autumn Statement to our warnings concerning Clause 24.
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Paul Temple
10:33 AM, 26th January 2016, About 8 years ago
Reply to the comment left by "Darlington Landlord" at "01/12/2015 - 22:20":
This is an aspect of the whole Clause 24 debacle that isn't really being considered at the moment - what impact the increase in corporate landlords will have on the market and the social structure of the country.
The majority of landlords are good people; as a result they treat tenants fairly - perhaps they don't raise rents annually with inflation, maybe let a tenant off a month's rent if they have particular issues etc etc. They are able to do this because they can make an individual judgement on their tenant.
How do people think this will work with a corporate? Thye will be wanting to maximise the return for their investors so rents will regularly rise, there wil be little or no slack in rental payments and so on.
"You have a problem paying your rent? You're looking for sympathy? I think you will find that between sh!t and syphillis in the dictionary; now pay up or we evict".
People are going to be out on their ear before they know what's happening - with the resultant bills then being paid by us, of course...
Gareth Wilson
22:49 PM, 29th January 2016, About 8 years ago
David Gauke has wooed Global Corporations over tax:
http://www.dailymail.co.uk/news/article-3421892/Treasury-m-inister-promised-cosy-tax-deals-giants.html
Matthew Stuart Haig
11:19 AM, 30th January 2016, About 8 years ago
All of the MPs in our area are Labour, however I've sent this letter to the MP in the area we invest to see if they can offer any support. I've written most myself and also borrowed some well written text from other examples - Have a look
Dear Stephen.
I am writing this letter to explain what catastrophic effects the Clause 24 of the Finance Act (2) 2015 will have on us individually and express how this will also negatively impact the lives of all our tenants in Dovecot.
We would really appreciate some help and advice on this matter as currently we see it as a lose lose situation.
Let me start by telling you a little about me, I grew up in a council estate in Liverpool, then went off to uni got a good job and started earning decent money. While all of my colleagues were spending their money on socialising, handbags and shoes, My husband Matt and I decided that we wanted to give something back so we set up a property investment company called Haig Property Solutions. It may be hard work but it'll be a good investment for our future, we thought! We sold our house, moved into a rented house ourselves and with our equity went back to liverpool where I'd grown up and slowly bought up lots of the empty, derelict housing that had been sitting empty for a long time. While all our friends and colleagues were socialising at weekends, we spent most weekends covered in dirt and paint, working hard bringing run down houses back up to a habitable state. We refurbished them to a very high standard and let them out to local families who in many cases had been on the housing list.
We have always worked in partnership with the council, the housing options teams and Local charities and we are very proud to be accredited landlords proving that our properties are to the highest standards.
We currently have 17 x 2 and 3 bedroom properties in the Huyton and Dovecot area, all of which are currently tenanted by low income or housing benefit families. Families who would struggle to get houses via a normal letting agent so will end up back on the local housing waiting list if we have to sell up.
We don't make much profit from the business, because the low rent we collect just pays the bills, in fact last year we made a small loss. We set our rents in line with the housing benefit allowance and in many cases have lowered rents when circumstances change rather than evict tenants.
This is how this new clause will cause us problems. Currently we have about £80,000 worth of mortgage interest payments going out annually which we have always offset against our rental income to determine our profit. The proposed changes in Clause 24 will mean that moving forward we will have to pay 20% tax on our mortgage interest payments which will leave us with an annual £16,000 tax bill, regardless of whether we make a profit. Treating payments to Lenders as though they were profit, rather than the expense which they actually are, increases the likelihood of all private landlords defaulting by effectively increasing our cost base. How can that be fair? Clause 24 actually pushes us toward defaulting on our loans. No business can survive a rate of taxation higher than actual profit.
We are currently faced with a dilemma, do we sell up and evict all of out 17 tenants, do we raise rents to try and cover the £16k or do we keep on doing what we are doing and go bankrupt. All 3 of these options make me feel sick in my stomach because we have worked so hard to help others and we are now faced with this dilemma because of an ill thought out 'tax grab' by the Conservative party. Another thing to note is that house prices have gone down in value so if we looked at selling we would also loose all of the money we have invested in them. On top of all of these concerns Liverpool council have also introduced the compulsory 'selective licensing' which is taking us even further into debt.
Our understanding about why this policy was put in place was to help first time buyers get on the housing ladder. The type of houses we buy, in the areas we buy in, have never and will never result in us competing and having an unfair advantage over 1st time buyers for these houses.
It appears that this change in income tax legislation will not affect incorporated landlords, no matter how small their businesses are, or property rental companies. They will all remain able to deduct 100% of mortgage costs in calculating their tax liabilities, and thus will be able to operate at a distinct advantage over their unincorporated rivals in the market place.
With this in mind we thought, that's fine, lets just set ourselves up as a Ltd company, that can't be so hard, can it? After lots of enquiries it turns out that the advice we were originally given by HMRC, our account and Solicitors has been superseded by this clause and if we'd have bought the houses under a company name we'd be ok. Unfortunately we have been told that it will cost us around £50,000 to transfer the properties into a ltd company to avoid this clause, all because we took the advice of HMRC and bought them in our own name. We don't have £50,000 in our pocket right now but if we wait till after April 2016 we will also incur an additional 3% stamp duty charge on the transfer of each property (another£40,000) due to the other anti landlord tax grab.
How can it be fair that a residential letting business carried on by individuals is the only business to have profit redefined in this way? Many incorporated landlords have portfolios much smaller than we do so why allow them to continue to deduct finance costs and not apply the same rules to our business just because we happen not to be incorporated ? How is that fair ?
Clause 24 was introduced with no prior warning or consultation whatsoever and whatever they say about this not being retrospective, it will apply to existing finance and business models. It will cause many businesses like ours to suffer an infinite rate of taxation and bankruptcy, but will also lead to rent increases and evictions.
As the tax is phased in some tenants will be phased out and ‘upgraded’ to those that can afford higher rents. Councils will face enormous demands on their housing teams and we know that many are already waking up to this fact. They are extremely concerned for the impact on C24 and the increased pressure on their temporary housing budgets. May I respectfully suggest that you talk to a few Council Private Sector Housing Officers? If you won’t take it from me that there will be dire consequences then ask them for their opinions.
Landlords will be no better off from the rent increases – they will just be collecting the levy to pass on to HMRC, like VAT – but tenants will be worse off. Their disposable incomes will be reduced. Those tenants who want to buy their first property will be less able to save for a deposit . This levy on finance costs will work through to become a levy on tenants .
Clause 24 has not been thoroughly researched. There is no joined up consistent thinking or logic to it and would probably never have progressed had there been the normal consultation with the industry bodies who would have advised on the consequences. This policy ignores common sense and long-term welfare issues, in favour of short-term tax grab and appeal to Generation Rent.
I know that you are not a member of the Conservative party who have brought this policy in but I'm writing to you with a plea to look into this on behalf of all private landlords and tenants out there who this will negatively affect.
Please can you email me back with any thoughts or suggestions that you think may help.
I'd be happy to meet up with you to discuss further at one of your surgeries.
We have recently moved over to the Wirral but I thought I'd contact you as its your constituents who are our tenants that will mostly be affected by these changes.
We look forward to hearing from you
Kind regards
Shirleyann and Matt Haig
Haig Property solutions
Dr Rosalind Beck
14:43 PM, 30th January 2016, About 8 years ago
Reply to the comment left by "Shirleyann Haig" at "30/01/2016 - 11:19":
Excellent letter Shirleyann.
Unfortunately, Labour have supported this bonkers policy all the way - sometimes even calling for the '20% relief' 'gifted back to be cut further. You might like to post this as an open letter. If you want to, just click on the 'create an article' above and paste it in. If Mark agrees, he will then publish it so that more people see it. We have to keep the awareness growing if we want to overturn this madness.
Chris Byways
22:13 PM, 30th January 2016, About 8 years ago
Reply to the comment left by "Paul Temple" at "26/01/2016 - 10:33":
Paul, the FPC are concerned with the private sector rather then the corporate sector destabilising the housing market. Seems like near panic has set in.....
"What is the problem under consideration? Why is government intervention necessary?
The Financial Policy Committee (FPC) have stated that the buy-to-let mortgage market could pose broad risks to financial stability. Buy-to-let mortgage lending has grown in recent years and now represents a significant proportion of total mortgage lending in the UK. Mortgages are the largest asset class on UK banks’ balance sheets, which exposes banks to significant credit risk. Buy-to-let mortgages may also amplify house price swings both in an upturn and in a downturn in the housing market. This amplification can pose significant negative externalities to financial stability, the owner-occupier housing market and wider economy.
The FPC consider powers of Direction in the buy-to-let market to be necessary to reduce the probability and cost of a materialisation of these risks, which could exacerbate the scale of a future financial crisis. The FPC also believes being able to apply a consistent approach to owner-occupied and buy-to-let mortgage lending is appropriate for macroprudential purposes, given the effects that buy-to-let activity can have on the stability of the owner-occupier housing market. The FPC was granted powers of Direction over owner-occupied mortgage lending in April 2015."
An LTV tool can have a direct impact on financial stability by reducing defaults in a lender’s mortgage book, and reducing the loss to the lender in the event of default. This can reduce the cost of a shock or crisis by preserving banks' capital. In addition, LTV limits can indirectly enhance financial stability by reducing the the extent to which buy-to-let investors amplify the scale of house price rises during a cyclical upswing by re-investing capital gains from existing investments. This can be detrimental to financial stability if increases in indebtedness in the owner-occupied sector leave households more vulnerable to shocks and potentially increases the costs of the FPC’s LTI policy for this sector.
An ICR tool constrains the value of the loan that a lender can extend for a given rental income and interest rate. This can have a direct impact on financial stability by reducing the probability of default on the loan, particularly in an environment of rising interest rates. It can also have an indirect impact on financial stability by reducing the risk that a significant number of buy-to-let investors sell their properties if market conditions mean their investments are no longer profitable, which could amplify the scale of a house price fall and have negative feedback effects on the macroeconomy.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/485800/20151124_Impact_Assessment_IA_for_BTL_Consultation_vFINAL__EST_signed__-_plus_review.pdf
Paul Temple
22:32 PM, 30th January 2016, About 8 years ago
There may well be some truth in the FPCs thinking in theory but the position was relatively stable until Osbourne stuck his oar in. Ironically, the FPC's concerns are now much more likely to come to pass because the government has created a situation that exacerbates the situation. So, when it all goes wrong they will be able to say 'told you so'!
Meanwhile, in the real world, the corporates will be treating tenants solely like a figure at the bottom of their profit and loss. They are already moving into the market in a big way. One company was quoted in The Times yesterday admitting that they were injecting £850m into the market now as they 'needed to move quickly to take advantage of the private landlords moving out'. Legal and General were also reported as seeing an opportunity and moving into the market.
Chris Byways
22:34 PM, 30th January 2016, About 8 years ago
It does seem by some cackhanded method they are likely to cause what they fear:-
It is neither possible nor accurate to produce a final set of monetised benefits for granting the FPC powers of Direction over LTV and ICR limits given the range of ways the FPC could use these powers. Therefore, the benefits have been labelled as not applicable. Analysis below suggests, however, that the benefits in reducing the scale of a potential financial crisis could be large. The impact of a one percentage point reduction in the likelihood of a crisis has been estimated to have an annualised GDP benefit of £4.5bn. The estimates show that under severe but plausible scenarios, an FPC power of Direction could reduce credit losses in the event of a shock by up to £7.3bn. In the same severe but plausible scenario,
****such a policy could also reduce the risk of a fire-sale by buy-to-let borrowers that could cause an additional fall in house prices of between 25% and 59%, ******
leading to a fall in consumption by home-owners of up to 3%, reducing GDP by up to 2%. And in an upswing such a policy could reduce the extent to which buy-to-let borrowers amplify house price rises. If a significant buy-to-let boom were to push up house prices, then it would mean that the FPC’s current Recommendation of a loan to income flow limit on the owner-occupied sector (implemented to insure against the effects of a rise in house prices
on household indebtedness) would be likely to bite harder, increasing the number of borrowers who cannot get a loan, or are forced to reduce the size of their loan, more than three-fold. These costs could suggest that the current policy mix, focused on only one sector of the mortgage market, might not be optimal.
Gareth Wilson
14:52 PM, 1st February 2016, About 8 years ago
Now is the winter of George's discontent...
http://www.totalpolitics.com/blog/456176/tories-rush-to-sell-shares-in-george-osborne.thtml
Chris Byways
17:43 PM, 1st February 2016, About 8 years ago
OsboUrne is showing his incompetence a tad too often, methinks.
Another U turn on CCS, ONLY COST US £60m so far + far more expensive energy in the future. Now the NAO is to investigate.
http://www.theguardian.com/business/2016/jan/31/spending-watchdog-nao-george-osborne-carbon-capture-storage-scheme
Rob Thomas
8:20 AM, 2nd February 2016, About 8 years ago
Great article. And, I agree with all the comments and replies, I think we 'small' landlords are singing from the same hymn sheet. As I see it, we need to get the sympathy from the public, the media and most of all the tenants. The petition ( which is no closed ) was a good starting point, but what we need is a good media outlet to back the landlords and re educate the public that we are all not rich bad money grabbing landlords. We need to meet with housing associations and tenants to explain the implications this will have on them. We need to have a TV programme like the Welsh town that took on the tax man.. Need to do something shocking... When the government closed down the pits in the 80's and took away miners lively hoods, there was a national outcry.. This the same.. George two faced is making thousands of hard working businesses go bankrupt or worse millions of people homeless .. Can someone organise a march on Downing Street ?