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TOPIC: Private Landlord writes letter to Duncan Smith

Private Landlord writes letter to Duncan Smith 01 Aug 2017 20:48 #3856

  • Sandella
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From the landlord perspective

www.property118.com/readers-letter-ids-got-started-just-couldnt-stop/So is this really only affecting the wealthy BTL landlords?

Dear Mr Duncan Smith,

Thank you for your reasoned comments in the Sunday Telegraph on 18th June regarding the treatment of private landlords by the current government. I apologise for the length of this correspondence, however, the changes affecting landlords is so broad-ranging and complicated, I haven’t been able to condense it any further.

The instigation of a retrospective tax on mortgages already taken out and only applicable to encumbered landlords (exempting limited companies both foreign & national, housing associations, holiday lets, B&Bs and hotels) is already negatively impacting the Private Rented Sector. Many landlords are planning to increase rents, incorporate their property business to reduce the tax impact, or turning appropriate homes into serviced accommodation, taking them out of the residential rental market altogether.

To disallow finance costs as a legitimate expense for landlords, but no other category of business, is unjustifiable and unreasonable. As you know, it is standard accounting practise that one pays tax on the profit of a business ie income minus expenses. Private landlords will be the ONLY business sector in the UK which cannot deduct legitimate business expenses against their tax liability. Some landlords will face an effective tax in excess of 100% and will have no choice but to raise rents or sell up, increasing the demand on councils for social housing.

We currently pay tax on our profits and the mortgage lenders pay tax on the interest they receive from us so in effect, this is double taxation.

Is the Government aware that in every major European country, landlords are entitled to full tax relief on mortgage interest (listed in an LSE study) and many of these countries are reputed to have a better-functioning PRS than ours, and without landlord licensing. In Germany, landlords may also sell a property entirely free of CGT after 10 years.

By the Treasury’s own calculations, approximately 400,000 landlords will be affected but it has confirmed that it has no idea of how many properties and therefore tenants, will be affected. If each landlord only has 1.5 properties, housing 2.5 tenants in each, this will potentially impact 1.5 million tenants – a consequence that the government and Treasury continue to ignore. Some estimates are even higher at 2m – 4.6 million tenants. If David Miles is correct and landlords will be forced to raise rents by 20-30% to cover the tax implications of Section 24, how will those Just About Managing afford this? According to research by the anti-landlord organisation Shelter, more than a million households living in private rented accommodation are at risk of becoming homeless by 2020 because of rising rents, benefit freezes and a lack of social housing.

The government arguments that ‘the relief reduction being phased in over 4 years means landlords will have time to adjust their business’. This is not necessarily the case for many who are tied into mortgages of 5, 7 or 10 years, most of them with early redemption penalties. And what of those who are in negative equity?

The Bank of England was concerned about the potential problems in the housing market, but if 25% of landlords sell up and flood the market with tens of thousands of properties, would the resulting price crash not also be a concern?

Twice Ireland introduced a Buy to Let tax and both times it had to be repealed after it caused rents to increase by 50% in 3 years, and homelessness soared. Their tax only applied to new BTL purchases so did not affect existing landlords. I would like to know why the Treasury thinks that an even more draconian tax, levelled retroactively, will not produce the same (or worse) result here?

How can the Government say they are committed to improving home ownership and reducing rents while simultaneously introducing a tax that will only result in higher rental costs, and therefore making it harder for people to save for a deposit?

Tenants are facing significant rent rises and the changes to Universal Credit is making it more difficult for them to secure a rental property. Tenants on housing benefits are already being evicted as they cannot pay the increased rent. Landlords are exiting the market thereby reducing the availability of property to rent.



Working Example from The Telegraph:

Landlord pays 40% tax.

Landlord’s BTL earns £20,000 a year and the interest-only mortgage costs £13,000. Tax is due on the profit. You pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.

From 2020 tax is due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest.

You pay 40% tax on £20,000 (£8,000), less the 20% credit (20% of £13,000 = £2,600).

HMRC gets £5,400 and you get £1,600. Your tax bill has gone up by 93%.

This is a very reasonable scenario for a London landlord with just one property.

£20,000 income a year equates to £1,666pcm rent (Londonpropertywatch.co.uk states average price for 3 bedroom house in SW16 is £1,744pcm. £2,257 average 3 bed house in SW2 according to Zoopla).

£13,000 interest payment could be on one property with a mortgage of £350,000 paying an interest-only mortgage at 3.71% on a property valued at £466,000 (below the London average of £563,715 or £580,625 on Zoopla for SW2).

If mortgage interest payments go up by 1% by 2020 that would cost £16,485pa in interest and the landlord will pay HMRC £5,400 on a loss of £3,485.

So is this really only affecting the wealthy BTL landlords?

more in link
"Half the world is composed of people who have something to say and can't, and the other half who have nothing to say and keep on saying it." - Robert Frost ...
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Private Landlord writes letter to Duncan Smith 01 Aug 2017 20:49 #3857

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Recent changes that negatively impact the PRS:

S24 Restriction of Mortgage Interest Relief pushing thousands of people into higher tax brackets as well as losing benefits such as Child Support.
The end of the Wear & Tear Allowance of 10%, now only able to replace items, even though the property suffers wear and tear.
Introduction of Right to Rent checks making landlords substitutes for the UK Border Force. Failure to comply incurs a fine of £3,000 and possible prison sentence. Landlords are not trained in spotting forged documents and the by-product of Right to Rent checks is unintentional discrimination, “when in doubt, don’t” (rent to foreigners). Those without passports are being turned away from properties. Is it working? Just 31 people have been deported in the first year with only £30k taken in civil penalties.
Landlord licensing being phased in across much of the country. Fees between £600 – £850. Newham is introducing 2 new schemes making it compulsory for ALL PRS to have a Gavin Barwell said about Croydon Council’s Landlord Licensing Scheme in 2014 “It doesn’t take a genius to work out what will happen if this scheme goes ahead: landlords who make the payment will simply pass the cost on to their tenants. Lest I be accused of scaremongering, the Council admits this, though the admission is buried 19 pages into its report ‘tenants may be impacted by an increase in their housing costs as landlords seek to pass on some or all of the costs of licensing through higher rent levels’.
Letting fees ban. Landlords will have to pay these and the cost will need to be passed on in higher rents. ARLA Propertymark expect rents to rise by up to £103 a year.
Energy Efficiency Regs: Fines of up to £4,000 if a rented property is rated E or below, but no government assistance for those who need to invest to bring properties above this threshold
Tightening of S21 eviction notice procedures. It takes an average of 45 weeks to get a tenant removed from a property, even if they have breached the tenancy agreement or not paid rent and the landlord is fully compliant. There is no law to force tenants to pay their rent but if we don’t pay our mortgage, we lose our house.
Compulsory Tenancy Deposit Schemes. It is now law that if we submit a deposit a day late it could cost us three times the monthly rent in a fine.
Stricter BTL lending regulations: The new rules require landlords to bring in higher levels of rent relative to their mortgage costs, making finding a home nearly impossible for Housing Benefit tenants. Furthermore, landlords with four or more properties will face additional stress testing from September 2017.
3% SDLT surcharge on all second properties. Buying a £200,000 home would now cost £7,500 in stamp duty, compared to just £1,500 before the changes. A £400,000 property will now add £22,000 to the price, instead of £10,000.
Universal Credit changes and will be paid direct to the tenant, monthly, and often up to 8 weeks later than needed, forcing many into arrears. The council don’t have this system for their tenants so their finances are more secure. Housing benefit reduced to 30th percentile. Housing benefits capped/frozen.
Rent Repayment Orders where landlords can be forced to repay up to 12 months’ rent back to a tenant.
Court fees increased so it’s more expensive for a landlord to evict rogue tenants
Making Tax Digital means producing 5 tax returns per property per year – and the government/Treasury thinks we’re not running a business!
Rogue landlord database: While I accept there are some rogue landlords out there, most individual landlords have a good relationship with their tenants, treat them well and fairly and abide by the laws and codes of practice.
There is also discussion of forcing landlords into longer tenancies, yet in many cases, it is not the landlord limiting the length, but the mortgage companies.
Furthermore, there has been talk of minimum bedroom sizes for rent. This country has a huge proportion of Victorian and Edwardian houses with box rooms, many of them owned by landlords. On a search of 63 London properties with a third bedroom, 41 out of 63 would fail the proposed 6.5m2 minimum (average is 6.0m2). What would happen to the families in those homes, or the landlords who bought 3 or 4 bedroom properties who may find themselves paying a mortgage on the value of a 3 or 4 bedroom house, but only allowed to rent 2 or 3 rooms?

Not a level playing field:

The Treasury Minister, Mel Stride MP, recently confirmed that landlords are taxed more than homeowners, noting that they pay tax on their rental income, extra Stamp Duty and Capital Gains Tax, unlike home owners, killing off assertions made by the former Chancellor, George Osborne, that tax rises on private landlords were about levelling the playing field with home owners.

To argue that S24 was to support first time buyers is disingenuous. The PRS don’t generally compete against FTB as we tend to buy slightly larger properties, create new residences through converting pubs and offices, and refurbishing ones that are in poor condition to bring them back into use.

Buy to Let mortgage are commercial loans, not personal. They are not regulated or protected by the FCA. The mortgage company dictates the terms of the mortgage including who can live in the property, how many, what types of tenants are permitted and under what conditions. BTL mortgages are more expensive than residential mortgages.

When the Chancellor compared landlords with owner-occupiers, he ignored that fact that for us it’s a business, not a residence. Corporate landlords and housing associations provide the same service we do, yet they are permitted to deduct their finance costs.

The government appears quite happy to create an unlevel playing field with initiatives such as Help to Buy schemes.

VAT can be reclaimed on goods and services in connection with the construction of a new dwelling when it is intended for owner occupation, but not when it is constructed to rent out.

The police do not view malicious damage to a rented property as criminal, they claim it is a civil matter, and will not prosecute the perpetrators, whereas they would prosecute for damage to an owner-occupied address. The Criminal Damage Act is very clear on the first page that any deliberate damage is criminal even if it is by you to your own property

“PRS provides sub-standard housing”:

Councils and registered social landlords are exempt from the health & safety regulations and licensing that apply to PRS landlords. The bedroom tax doesn’t apply to council houses, nor electrical certificates, hard-wired smoke/fire alarms, nor tenant packs etc, and yet council houses have taxpayer-subsidised rents. Why is it not a level playing field where regulations apply to all residential landlords regardless of their structure? Legislation should amended to remove this exemption forthwith.

Rented homes should be far safer than owner-occupied houses because landlords are obliged to provide lots of safety features that home owners aren’t. For instance, landlords must have gas appliances and flues tested at least once every 12 months and the tenant must be given a copy of the gas safety record to prove this has been done. Tenants must be provided with the EPC cert, How to Rent booklet and even appliance manuals by law in addition to Legionella Risk Assessments. All furniture and soft furnishings in rental properties must be fire retardant and landlords must provide working smoke alarms on every floor and a CO monitor, and make sure they are tested regularly. HMOs have even more onerous regulations to comply with. No home owners are required to do these.

Landlords are already legally obliged to provide safe, secure, hygienic accommodation — and if they don’t, councils have the powers to prosecute them. Punitive measures are in place against landlords. Councils like Durham prosecuted a landlord because she omitted to get a reference for a tenant.

A circular argument:

If the government wants more FTB to be able to afford to buy their own homes, with the need to raise rents to cover the new tax regime, it will take them even longer to save for a deposit.

Even if owner-occupiers buy a BTL property form a landlord forced to sell, it worsens the housing crisis as it removes that property from the rented sector, therefore rents go up more and people are forced into worse accommodations if they can’t afford a higher rent.

Shelter and other organisations have sometimes tried to blame landlords for homelessness, citing as evidence statistics about how the end of a private tenancy is the most common cause of homelessness. This is only because landlords are providing housing in the first place! However, research carried out by Simple Landlords Insurance found that Ministry of Justice figures reveal over half of repossessions in the first quarter of 2016 were in the social housing sector (57%), while just 15% of claims took place in privately rented homes. Also, the English Housing Survey found that 78% of tenants reported their last tenancy ended because they wanted to move. Only 1% of tenants said their landlord terminated their last tenancy.

A redistribution of current homes adds nothing to the housing stock. If landlords are forced into selling their portfolio, it doesn’t make more stock available. If individual landlords are forced to sell properties are likely to be bought by corporate landlords who have the finances available but are driven by the bottom line, not human or humanitarian instincts.

When the government released pension pots recently, a lot of people used them to invest in BTL, this potential infinite tax could wipe out people’s pensions or make them bankrupt, so what will happen when they need to retire? Will they be housed by their council? If so, where will the council find the stock?

The reduction of investor demand also reduces supply of ALL housing. If developers don’t have an investor income stream, they will build fewer properties and that means fewer homes, for everyone, including First time buyers and affordable homes created by larger developments.

PRS operating in a skewed industry:

Councils, Shelter & CAB have all been advising tenants to stay in properties until the bailiffs arrive which is illegal*, and incorrect. A council is not allowed to advise a tenant to stay in a property if they have breached the tenancy agreement. Councils argue that they can only re-house people when the tenant is homeless or threatened with homelessness. If the tenant has been issued with an eviction notice due to non-payment of rent or a breach, they have effectively made themselves homeless and are therefore not entitled to council accommodation, regardless of whether the bailiffs are called.

The government is introducing a national database of “rogue landlords and letting agents”. At present there is no central database for tenants where possession orders with money claims are registered, as the courts do not recognise possession claims with arrears as a County Court Judgement. If they did, this information would show up on tenant referencing. As it stands, a rogue tenant can move from property to property running up rent arrears and it does not show up on referencing unless the landlord goes to additional expense of trying to enforce the money order.

PRS Landlords are not money-grabbing fiends:

A new report from the National Audit Office has revealed that private sector rents have increased modestly, in line with earnings across England. But whilst the cost of renting in the private sector has largely followed changes in earnings, the figures show that rents in the social sector have increased faster than wages. The exception to this is in London, where rents are rising much faster as a consequence of the supply-demand imbalance in the capital.

These findings will surprise those who have falsely sought to argue that landlords are profiteering. So now the question is: why is the heavily subsidised social rented sector seeing its rents rising so much more than earnings?

According to Kent Reliance research, in the Capital the average cost, excluding mortgage costs and tax but including void periods, is £6,535 per property per year or 32% of the amount landlords receive in rent.

According to tax returns, two thirds of landlords equating to 1.9m people are Basic Rate tax payers and only 4% are Additional Rate tax payers so we are hardly “wealthy”.

When social housing was sold off under Right to Buy, it was not landlords who got the massive discounts, but social tenants, who often went on to sell these properties for massive, CGT-free profit.

My mortgage contract states that I must have a RICS surveyor value the rental potential of my property every year and we must raise the rent to the maximum the market can bear. I have fought this clause and have had a partial victory in that the lender will change this in future contracts but it still stands for existing borrowers like us!
"Half the world is composed of people who have something to say and can't, and the other half who have nothing to say and keep on saying it." - Robert Frost ...
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Private Landlord writes letter to Duncan Smith 01 Aug 2017 20:49 #3858

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This is a very long letter and I never knew about most of these changes, what a bloody mess the housing market is in...
"Half the world is composed of people who have something to say and can't, and the other half who have nothing to say and keep on saying it." - Robert Frost ...
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Private Landlord writes letter to Duncan Smith 02 Aug 2017 08:48 #3864

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Please could posters just post a Snip, And link to article, And not post the whole article;
This is in the Interest of "Fair Usage" and is also the law; Spanner and I don't want to spend our time
In Court.
Been a Few Places; Done a Few Things
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