Finance Bill

Written evidence submitted by Carol McEvoy, Franchise Partner, Platinum Property Partners (FB 79)

I have recently heard about the tax changes you are proposing which would have devastating consequences to our property business as well as hundreds of thousands of other landlords with small portfolios of properties.  Taxing our revenue rather than our profit will reduce the availability of rented accommodation to both private and DSS tenants and cause a huge, unprecedented drop in house prices as thousands of landlords try to sell their properties because they can no longer afford to keep them

My husband and I changed careers 7 years ago to start up a property business.  Our objective was to build a small portfolio of properties, primarily to provide high quality shared accommodation to key workers and young professionals in central London.  We now own eight properties, five in London where we have over 30 tenants living in beautifully furnished rooms in lovely houses with large communal areas, plenty of bathrooms and well kept gardens, and three outside of London let to families.  All our shared houses exceed council regulations for fire and safety.  We employ part time cleaners, gardeners, a handyman and a Lettings Manager and we actively maintain our properties to a high standard.

Your proposed tax changes will increase our tax bill by approx £20,000/annum which we could not afford; we will either have to sell the houses, increase rents or lay off staff and go back to working 100+ hour weeks as we were when we were building the business.  So the result will either be a loss of affordable accommodation for 30 key workers and young professionals in London and three families outside of London, or increased rents for our tenants, or a loss of jobs; none of which, I think (though I’m not sure) you would want.  I realise the impact on the economy of our plight is tiny, but multiply it by the number of landlords in the UK and it becomes economically significant.  Yes, it might happen gradually, but the effect will be the same.  You estimate it will affect 1 in 5 landlords as many are lower rate tax payers.  This is nonsense.  It is likely to be closer to 4 in 5 landlords as most will be pushed into higher rate tax bands because their ‘income’ will increase significantly.

I can understand the need to make it easier for first time buyers and to dampen down the number of buy-to-let investors, but does it have to be achieved by wiping out hundreds of thousands of small businesses up and down the country built by people who have invested hundreds of thousands of pounds of hard earned cash into their businesses, as well as worked their socks off for many years?

I have read about your intention to ‘level the playing field’ with home owners, but you need to take account of the fact that home owners who live in their properties have the benefit of living in them.  We don’t.  And we have to pay capital gains tax on every property we sell.  They don’t.  The playing field would certainly not be levelled.

I understand similar tax changes were introduced in Australia a few years ago and then had to be reversed because the drop in house prices forced so many homeowners as well as landlords into negative equity which had such a massive negative impact on the economy that they had to reverse them.

There are three main reasons why I have had to write to you to explain why I believe you have not fully thought through the consequences of your proposed changes.

Firstly, the principle.  You are proposing to tax turnover, not profit. If such a tax were applied to any other business its effects would be ruinous.  I know of no precedent for such a tax, which would result, in many cases, in landlords being in the position of being taxed on zero net income or even on a net loss.  If interest rates go up, so will our costs, and perversely so will our tax bill.  Is your objective really to close down all the small businesses in the buy-to-let industry?  Margaret Thatcher will be turning in her grave.

Secondly, successive governments' tendencies to alter taxation prevent individuals and families from making long-term financial plans.  If people are to invest over decades to provide retirement income or to finance children's education, etc, they need a stable tax backdrop in which to get on with it. Investors can undertake their own research and draw their own conclusions about risks relating to asset prices, rental income (tenants don’t always pay their rent) and interest rates, for example, but what they can never make provision for are sudden changes to a tax regime. Such tax changes are destabilising and damaging because they introduce uncertainty.  There was nothing in your manifesto about these proposed changes, and there was no consultation with interested parties before they were announced.  I understand it was an idea you purloined from the Green Party’s manifesto; surely you can do better.

Thirdly, this tax specifically - almost exclusively - attacks smaller, modest buy-to-let investors.  Very wealthy individuals with no mortgages and landlords with large property portfolios who can incorporate their properties and run them as a business will effectively escape the tax.  A growing breed of institutional landlords, including insurers, asset managers, pension funds and other vehicles, will also not be touched by the tax. In fact they will continue to enjoy the tax breaks which are being withdrawn from us smaller landlords under these proposals.  This seems unfair. Why should less-wealthy property investors pay more tax than their wealthier counterparts?

In summary this tax will have shattering consequences for landlords like us with a handful of properties, the hundreds of thousands of small-scale investors who own one or two properties as part of their wider savings plans, the millions of people who live in rented accommodation as supply drops and rents go up, and you, the government, as you have to find alternative accommodation for millions of DSS tenants who will be evicted as landlords sell up.

You and your colleagues must be able to find a better way to achieve your objectives.  I urge you to use your collective brain power to come up with it.

October 2015

Prepared 14th October 2015