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TODAY'S OTHER NEWS

Stamp duty and buy to let tax changes - put your views to David Cameron

Estate Agent Today readers are being given the rare opportunity to have their concerns about proposed stamp duty increases and recent buy to let tax changes put directly to Prime Minister David Cameron.

Andrew Goldthorpe - chief executive of PropertyMutual.co.uk and owner and managing director of PropertyPortal.com - lives in Witney, where David Cameron is the local MP and holds weekly surgeries for constituents to discuss issues.

“The proposals are fundamental in challenging the buy to let model and they risk reducing the private rental stock in particular. I’m also extremely concerned that the consultation period over the recent stamp duty surcharge is so short” says Goldthorpe.

The buy to let sector has been the target for a string of controversial measures proposed by the government in recent months. Many in the industry have spoken out about the detrimental effects on landlords and lettings agent in particular, but also on estate agents and even new-build developers reliant for some of their business on investor buyers.

The controversial measures include:

- an additional stamp duty surcharge of three per cent on all ‘additional properties’ (so chiefly buy to let properties and second homes) priced above £40,000;

- the restriction of mortgage relief for buy to let investors to only the basic rate of income tax, even for investors paying higher rates;

- a change in the Wear and Tear Allowance, permitting landlords to claim only for repairs involving receipts.

Many industry analysts have suggested that these measures combined suggest the government has become deeply unsympathetic to all elements of the buy to let sector, despite its provision of homes for a growing number of households choosing, or obliged, to rent rather than buy.

The most recent controversy is that the official consultation over the proposed stamp duty surcharge was launched on a Bank Holiday in the middle of the Christmas and New Year break, when publicity and industry attention was at its lowest.

The deadline for this consultation closes on February 1 - so Andrew Goldthorpe’s offer to put readers’ views directly to the Prime Minister is timely and urgent.

If you want your view put to David Cameron, please leave a comment beneath this story as soon as possible and we will collate these. They will then be put collectively to the Prime Minister, and we will report back on the discussion and official response in the near future.

  • Simon Shinerock

    Dear Mr Cameron
    It is my contention that the decision to tax private individuals on turnover rather than profit and to charge them an extra 3% stamp duty while leaving institutions alone is unfair, politically motivated, misguided and fundamentally flawed.

    I believe these changes attack the values of our society and undermines personal ambition and aspiration, an obvious irony coming from a Conservative Government committed to upholding these same values.

    The real problem this country faces is an acute property shortage which has come about over many years and has many causes outside the scope of this submission.

    However, it seems to me that the real purpose of the proposed removal of these changes is not to encourage first time buyers, or, as has been suggested to remove a fictional advantage from landlords.

    I suspect the real purpose is to reduce private competition from the market in order to encourage mass build to let by profit motivated institutions in a misguided attempt to solve the housing crisis.

    If this policy is allowed to play out our society will be changed forever and will become a society most people don't want and not the kind of society that they voted for.

    Institutional Build to let properties will be aimed purely at maximum returns, they will be small, expensive and unsuitable for owner occupation, thus removing from, not adding to the percentage of homes in owner occupation.

    Private landlords have in the main chosen to invest in property as the only viable way of securing their future financial security. I understand this as much as anyone partly because of my current business and partly because I used to sell pensions and recruit and train financial advisors.

    Most private Landlords have individual pride in their properties, they consider the potential for improvement and therefore capital growth. Their properties are often sold to owner occupiers and therefore remain as part of the potential home ownership stock.

    If this change goes through and many private landlords exit the sector rents will go up as institutions have less competition.

    There is an assumption that everyone wants to buy to live, this is untrue. Many now separate there living arrangements from their investments, choosing to rent for flexibility and mobility and invest for Income and capital growth. This approach has been good for the economy and the country making our workforce more agile than our competitors, this edge will be blunted by these changes.

    Those private landlords that hang on will be forced to put up their rents to cover their costs and when interest rates rise to exit the sector, probably at a very bad time to sell, because the effect of removing higher rate tax relief is insidious in that it will become exponentially more expensive as interest rates rise.

    If implemented these changes will not only distort the market harming our economy, they will undoubtedly cause great harm to the sector and cause a gigantic anti conservative backlash, with the Conservatives once again being portrayed as the party of the elite, selling out to institutions in favour of their core middle class supporters.

    As I have already said and I'm sure you realise, the real problem the housing sector faces is an acute shortage, the solution is clearly to build more properties. However your current policy of penalising private landlords and favouring institutions is not only wrong, it will not work.

    It will alienate a large sector of society, possibly lose the Conservatives the next election and if pursued ruin a perfectly good Lettings and estate agency industry. Worse still, it will specifically harm the interests of the doers of our society, the key supporters of this government.

    I therefore entreat you to go back to the drawing board and shelve these changes. Instead, solve the housing crisis properly and start with a process of open honest dialogue around the problem.

    This will give those who support the preferential treatment of institutions in the buy to let sector the chance to have their say without hiding behind an obvious campaign of disinformation. The government should not make it seem as if the private landlords are the problem when they are not.

    It would also like to enable other more creative and more fair solutions to be discussed. I personally believe that private individuals and institutions can work with government to solve this crisis, it does not have to be them or us, it can be us and us and if it is a better, longer lasting and more effective solution will be found.

    Should you require any further information please do not hesitate to ask, in the meantime I am available at your convenience

    Regards

    Simon Shinerock

    Commercial Trust

    This is a very interesting response Simon, and you make some great points.

    It's quite clear that neither measure (I don't count the revocation of the wear and tear allowance alongside the stamp duty surcharge or finance cost relief restriction) is intended to adversely affect institutional investors, and the government has made no secret that it wishes to encourage this type of investment. Since the publication of the Montague Report in 2012, the government has been overly concerned with how best to encourage institutional investment.

    Evidently the Treasury and DCLG are convinced that large-scale build-to-let schemes are the way to solve the housing crisis. But to be attractive to institutional investors, the returns from this type of investment need to be predictably high. So either rental returns need to be high (meaning prohibitive rents), property prices need to keep rising, or both.

    This is why I don't believe the rhetoric of helping first-time buyers. The government and the Bank of England are doing everything in their power to prevent house prices from falling – in other words, becoming affordable. This includes deterring highly-geared investment from private individuals (by restricting buy to let mortgage interest relief) and, potentially, preventing lenders from issuing high-LTV or low-DSCR loans by enabling the Financial Policy Committee to intervene in the sector.

    So what is the motive? Are the government hoping for an exodus of private investors, enabling institutions to snap up the leftover properties on the cheap? Risky, as if house prices fall, they will take the economy with them; owner-occupiers will become less wealthy in relative terms, consumer spending will fall and credit loss rates will rise. (Does this sound familiar?)

    More likely is that the government hopes to maintain the current status quo vis a vis prices whilst affecting a transition from a privately driven to institutionally driven sector. Thus, large landlords are encouraged to incorporate, whilst small landlords are penalised and encouraged to sell, probably at a loss.

    In an ideal world, the housing market would offer affordable and flexible accommodation across all tenures, provided by a mixture of private, institutional and social investment. But several decades of gross mismanagement of the nation's housing have, sadly, made this extremely difficult to provide.

     
    Algarve  Investor

    "In an ideal world, the housing market would offer affordable and flexible accommodation across all tenures, provided by a mixture of private, institutional and social investment. But several decades of gross mismanagement of the nation's housing have, sadly, made this extremely difficult to provide."

    You've hit the nail on the head here. Well said. Until there is widespread changes to the housing market, this is all just gimmicky nonsense and tinkering around the edges. Successive governments have failed, for decades, to address the serious issues with housing in this country. And it looks like it's going to take another few decades - or a massive property crash in the next few years - for the government to wake up and take some decisive action.

     
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    I have recently begun to invest in the Buy to Let market and am focusing on the area I live which is one of the most deprived areas in the country. My philosophy is that I want to upgrade the properties I buy to generally improve the area and because I live here, and I want to look after my tenants well. I have to earn a living and the margins are not that great. The extra stamp duty on any future purchase will completely wipe out the budget for refurbishment which will adversely affect the quality of life for the tenant and the general regeneration of the area. A very short sighted move by the Chancellor!

    Jon  Tarrey

    Hmmm, earn a living from renting property? Some people might say that a home is somewhere to be lived in, not something to be used for investment. Works pretty well in the rest of Europe.

    I don't trust this government as far as I can throw them, but on this I don't entirely disagree with the Chancellor (never thought I'd utter those words! I think I need a lie down).

    Of course, the housing crisis isn't the fault of the buy-to-letters, but it isn't going to be solved by making this form of investment even more popular. People find it difficult enough to buy as it is. I have zero faith in the government's housebuilding promises or all these supposed affordable housing schemes - upwards of £300,000 is affordable nowadays, is it? - but I also think the buy-to-let brigade get a little bit too defensive when it comes to any interference in a market that barely existed even a decade ago!

     
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    Reply to John

    It works well in the rest of Europe?

    I don't know all the details but the german system is very differrent to the UK's. Although some element may be more favourablle to tenants landlords are not disadvantaged either.

    would you like to see the UK introduce the ability to write of against tax the actual capital price paid for a property over time and the ability to pass let property from generation to generation with no inheritance tax?

    And as to BTL having barely existed a decade ago. Individual pensions have only been available since about the 1970's. Private rental property has been the retirement mainstay for thousands for well over 70 years or longer.

    It MIGHT be true to say that BTL mortgages are a more recent innovation but that was something that HM Treasury were doing everything it could to make more widely available at least as recently as 2010.

     
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    Hi Simon,

    An interesting response. Before I give my view, perhaps you can clarify something in your post.

    To paraphrase you, essentially the new rules are to encourage/strengthen institutions involved in buy/build-to-let by reducing private competition. However, will the institutions themselves not also be hit by a number of the government's new 'initiatives'?

    Where I strongly agree with you is that we need a strong PRS in the UK. Whilst there are bad landlords (and letting agents!), I would suggest that private landlords are going to be far more interested in their community, their tenants as human beings (rather than just numbers) and the 'health' of their properties (as the above poster, Shelley, admirably demonstrates) than large corporate investors. Therefore, property standards, and indeed a sense of community, will be better with a strong PRS than with a weak PRS and strong institutional bodies.

    Andrew

    Simon Shinerock

    Hi Andrew
    Institutional landlords won't be affected by any of the changes because as corporates they escape the higher rate tax penalty and as bulk buyers they escape the 3% stamp duty surcharge as well. Plus there is likely to be significant additional incentives offered to them to build to let

     
    Commercial Trust

    Andrew,

    The government consultation proposes creating an exemption either for bulk purchases of 15 or more residential properties, or for purchases where the buyer has an existing portfolio of 15 or more residential properties.

    2.19 - the treatment of large scale investors

    This could apply to both private individuals and corporate investors, but in any case, institutions are unlikely to be adversely affected.

    Furthermore, the new tax relief regime does not affect companies, who pay corporation tax rather than income tax, and therefore retain the full relief for buy to let finance costs.

     
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    Many thanks to both of you for your replies. That makes sense to me, now (your arguments - not the proposals!).

    Quite frankly, this is, as already said, a clear play to allow the super rich to push-out the traditional middle class BTL investors - probably taking the letting industry with in...

     
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    I am 61, and started as an 'accidental' landlord when I bought a larger home with my partner, and we both rented out our previous homes. We then bought 2 BTL apartments which we hoped would help fund our retirement (because neither of us will have a public sector pension). My property in London has been profitable because I was part Freeholder and a Director of our own management company, and I had very good tenants. However, we have actually lost money on the other 2 properties due to rental voids between lets, non-payment and vandalism by 'rogue' tenants, management and legal fees, repairs due to poor construction, and spurious service charges by the landlords and their agents ...so much for those who talk of landlords providing squalid, high rent accommodation, with a license to print money!

    Following the recent ill-conceived government changes, I decided to sell up in London, but far from the apartment going to a first time buyer or young family, or back to the rental sector, it was bought by a retired couple who had downsized and wanted a London pad as their second home. As for my equity from my London property, I will not be reinvesting in the rental sector, and I believe my situation will be repeated wholesale. I would rather invest in a classic sports car!

    We would love to sell our other properties. When the 'double whammy' of tax changes and future interest rate rises start to bite, we will be in dire straits. Our rental income will push us into the higher tax bracket, on which we will be taxed, but we will not actually have that income because most of it will have already been paid out in mortgage interest; a normal business expense for a Ltd company. This is fiscal nonsense!

    How can it be right that a Ltd company (and very strangely, those who buy properties for holiday letting) are permitted to buy rental properties with mortgages, and be allowed to claim the mortgage interest payments against tax, but it is not permitted for a private landlord to do the same?

    I grew up in a working class family, where voting Labour was never even questioned. When I had a family of my own, and aspired to more than my parents had 'settled for', I voted Conservative ever since, because I thought they were the party for aspirational Britain. This past 6 months has shown just how wrong I am!

    This government has attacked small business entrepreneurs and landlords, both of which impact me. I guess they are hoping we will simply get used to it before the next election. Wrong!

    I will not vote Conservative again, and there isn't another party worth voting for, so my vote will be wasted if there isn't a party that looks after my interests.

    Can David Cameron provide an answer to this?

    There are many voters in the same position as me who need to know where to place their 'X' next time around ...starting with Europe.

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    For some of us Buy to Let is a business, i own 40 properties, i employ 15 people full time, i employ estate agents and numerous other trades so i am putting alot of money back into the economy, however this is not classed as a business, how is it not a business.
    This is the only business where the loans you take out is not going to be deducted from the profits, so i will be making huge pretend prfits which i am expected to pay tax on but Facebook which makes billions pays a very small amount.
    This government has let down the small person and its all about the big institutions for them, my vote counts for nothing as i am not in the commons loybbing very loudly to be heard and taking all the MPs out for expensive dinners,
    I simply cannot afford to run this business and will be selling everything and leaving the country as i have no choice and all the people i employ will lose their jobs.
    Job badly done Prime minister

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    The Government proposals are a betrayal of Tory principles and an attack on the hundreds of thousands of decent landlords.
    Private landlords are great for Britain. They buy dilapidated property, pour £millions into refurbishment, and fill it with uncountable people who need a home. Why attack them?
    The craven pandering to the super-rich (exemptions for institutional investors) is disgusting. It is like the corrupt sale of the Royal Mail to George Osborn's mates. The rich get richer, the ordinary landlord gets stuffed.
    Thirdly, property investment is a pension. The more Cameron destroys our hopes of providing for our own old age, the more he inflates the state - something I thought the Tories were against.
    Fourthly - and obvious enough - landlords have nothing to do with the housing shortage. The supply weakness is the fault of successive governments, who couldn't organise a drinking session in a brewery. (I remember the Barker review...) The demand problem is, wait for it, down to successive governments' pitiful inability to control immigration and to 'rebalance' the economy away from London. It is nothing whatever to do with landlords. A hundred years ago, ninety percent of housing stock was private rented. To kick the private landlord is to take advantage of an unsympathetic target - what we call bullying. It stinks ethically, economically, and politically.
    Finally, far superior options are available. For unoccupied homes, Council Tax could double every six months. For homes used no more than three months of the year, Council Tax could double on a rolling basis. Those measures would make a real difference to the supply side, and put some money back where it counts, with local councillors.
    We also need to end the scams: help to buy and shared ownership. These are devices to enrich developers which inflate the housing market. Exactly the kind of short-termism that damages the economy.
    All in all, this is a very nasty piece of legislation from a very nasty government that has got everyone baffled.

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    On 29 April 2015 David Cameron PM pledged that if the Conservatives were elected there would be no increase in income tax in the forthcoming parliament, full stop. He asked us to trust him, and warned us not to trust the other parties who had secret plans to increase it.

    Ten weeks later, on 8 July, George Osborne announced that he would increase income tax from 2017 for landlords who bought properties in their own name (but not for those who bought through companies) by disallowing mortgage interest.

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    As I have mentioned on this web-site previously. its hardly the 3% Stamp Duty virtually everyone is obsessed with.

    Julia Simmons (see above) has it bang on when she says ''This is the only business where the loans you take out is not going to be deducted from the profits, so i will be making huge pretend prfits which i am expected to pay tax on but Facebook which makes billions pays a very small amount.''

    THIS is the real issue!

    PRIVATE Landlord's - who in the main do an excellent job will be penalised with large corporate bodies will escape all of these penalties.

    ITS ABOUT THE TAX RELIEF ON MORTGAGES - Much more than the one-off 3%.

    Can we see the problem for what it is now? and not the ''pretend'' problem of the 3% Extra Stamp Duty (why not offer 3% LESS for a property?)

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    Dear Mr Goldthorpe,

    Can you please put forward the following to Mr Cameron:

    Having read the consultation paper, I would like to share the following feedback with you, which I hope will refine the policy to demonstrate better equality among those affected by the changes:

    I note that those who own a rental property, but not their main residence, will be liable for the extra tax. There is an exemption for existing buy-to-let owners who own a main residence and at present, this does not extend to landlords who do not own their main residence.

    This puts myself and many of my peers at a disadvantage as I own a property which I rent out and I live with my parents. Should I wish to buy a property to live in as my main residence than I end up paying the higher stamp duty land tax charges. This is in stark contrast to somebody who currently has a rental property and a main residence, who then then buys an additional property to live in. In this instance, this party is exempt from the charges.

    The forthcoming changes should apply equally to everybody and I believe this exemption from the charges should apply to landlords who do not own their main residence.

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    I own a small flat outright and having got married and saved some money we would like to buy a bigger property, taking a let to buy mortgage on the flat and renting it out. With this new legislation, we would be liable to pay the 3% additional stamp duty on our primary residence that we will live in, and not the smaller, cheaper property (that we currently earn) which we were hoping to bring into the rental market (unless we complete before March 31st, which is highly unlikely given how few properties there are on the market).
    I am a lifelong Conservative voter and am extremely disappointed by this new policy (not to mention the way it's being brought in with a short consultation period and short implementation time), which as others have said will penalise the country's middle income earners who are just trying to make an investment in their future. We are also penalised by being married, but unfortunately cannot just get divorced in order to avoid the tax!
    It seems that the government, of which I have until now been a strong supporter, is determined to continue to support institutional investors at the expense of aspirational, hard-working (and high tax-paying) middle classes.
    It is an ill-though-out policy that will lose the Conservative party a large number of voters from its loyal core, and will result in the rents increasing as institutional investors take advantage of the lack of competition and the rental stock diminishes.

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    As a mortgage adviser with over 30 years experience in the industry, this latest move by the government tinkering around with the housing market in my humble opinion ....is diabolical. It appears to be ill thought out with no regards to the number of hard working people who are attempting to better themselves, provide stability for future life in retirement, and those who will unfortunately be unable to purchase a new home until their current one is sold purely due to the cost that will now be incurred. The proposals will not only be detrimental to individuals but to the housing market as a whole and the suppliers of services and products within that market, the only person benefitting will be the tax man.

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    I am a accidental landlord. I bought a flat in 2001. In 2013 I have decided that the flat is too small for my son and my daughter who was 1 then. But I couldn't afford to sell the flat as it was with tens of thousands in negative equity. Either I stayed there for another 20 years or rented out and buy a new house which I did.
    The rent just covers the mortgage interest and leaves me a bit of money to maintain the property as the whole block is in a really bad state. I still can't sell it. But know with the new charges I won't be able to claim the interest as an expense. I won't make any profit on it, more likely I have to pay to keep it. So I am stuck in the moment as I don't have the money to pay the different between the market price and the mortgage to the back. And I don't want to leave my lovely new house which is perfect for us now.
    Now, my situation worsen, as if I decide to sell my residential property to move to new area for better school or work, I have to pay and extra stump duty as per my understanding. Please delete my comment if that is not the case.
    We are paying for all the mess the bank have created and now we are going to be penalise even more. I just can't see how I personally can get out of my debts. The way I see it, the middle class and people that work hard to better themselves are penalised the most. And yet the richer get even richer...I can't see how this can be fair way to tickle the problems with the housing

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    I own a property that I let out but as a single person not yet been able to afford to purchase a property to live in (currently living with parents) but hoped to in the next year or two, but have now discovered that the proposed changes to the stamp duty rules would see me paying an additional 3% stamp duty while other landlords with more money and already owning a main residence are exempted.
    How can it be fair for a wealthy landlord with 5 properties be allowed to purchase a main residence and not pay the 3% surcharge (providing he sells his old residence within 18 months) while a first time buyer struggling to get on the residential property ladder is not exempt.

    Surely in the interest of fairness it is only fair that this discrepancy be eliminated.
    As a landlord I am already prevented from using many of the governments schemes to help first time buyers such as the Help to Buy ISA as I a property but that doesn't help when trying to buy a home to live in.

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