Finance Bill

Written evidence submitted by Laura Hall (FB 68)

The proposal to restrict ‘deductions for finance costs related to residential property' announced in the Summer Budget: A perspective from a small portfolio landlord who provides homes for the social sector.

Paragraph 1: Introduction
I am a full time landlord, very hands on and dedicated, not only to the future of my business but also to my tenants who are my customers. My submission focuses on the impacts to my business, my tenants and my future if I am to be taxed without being able to deduct all my business expenses.

My property letting business consists of multiple properties in SE England (expensive area to buy) and my current tenant list as of today is as follows:-

· 3 young working individuals

· 1 stay at home mum

· 4 European migrant workers – all eligible to work in the UK

· 2 benefit claimants on the government Enterprise scheme, both of whom are
making a good recovery from health issues.

· 2 self employed

· 3 long term benefit claimants with long term health issues

· 1 jobseeker currently claiming benefit but working hard to find a job!

In the previous 24 months, I have personally helped 11 individuals who were registered as homeless. 4 of whom were long term hostel residents and 7 were sofa surfing or using the ‘crash’ facility at hostels. None of them were considered in priority need of housing, so they could not get a property of any kind from the housing team at the local authority.

Paragraph 2: Business Vs Investment
It is my belief that this is a most critical point, the bill has been created under the view that my property is an investment, not a business. I can assure you, it’s very much a business. It’s extremely hard work, challenging but ultimately rewarding when I’ve successfully helped someone into housing who was previously sofa surfing or in hostel accommodation.
To compare it to a passive investment like purchasing stocks and shares is nonsense. I can assure you that owning a rental portfolio is not passive! I’m available to all my tenants 24/7. I respond fast to issues that arise, I help them complete benefit forms to get them started, I take risks by allowing them to move into my property before their benefit claims are assessed (as is government requirement), I help them emotionally where I can, the list goes on! I can assure you, it’s not passive!
Even those landlords who do not self-manage, they create employment for someone else who does.

Paragraph 3: The concept of landlords having an advantage
Budget extract: "First, we will create a more level playing-field between those buying a home to let, and those who are buying a home to live in".
This is simply not the case, for the following reasons:
* Buy to let lending is charged at a higher interest rate than residential mortgages
* Buy to let mortgages have larger set up fees than residential mortgages
* Landlord’s pay capital gains tax on disposal of the assets, homeowners do not
* Let’s not forget - Private landlords also have residential mortgages, I don’t expect to have any tax deduction in relation to the interest I pay for my own home.
Paragraph 4: A worked example:
I went on the Nationwide and The Mortgage Works websites this afternoon to take the averages so that I may explain. I was very careful to compare exactly the same LTV (I used 75%). There were 13 residential mortgages and 12 Buy to let mortgages available.
The average set up fee on a £200,000 purchase price with £150,000 loan amount was:
--Residential mortgages £461.08 --BTL mortgages £1704.17
The average interest rate based on the same loan:
--Residential mortgage 2.56% --BTL mortgages 3.88%
So every year the residential homeowner will pay £3840 in interest and the Buy to let investor will pay £5820 which is 51% more interest and £1243.09 more in fees.
The individuals who proposed this tax change talk of ‘a level playing field’. I can assure you the perceived advantages that the government are using as a basis for this change are not based on real world calculations or examples.
My mortgages are a legitimate expense to my business, if I cannot continue to fully include it as an expense; my business will potentially no longer be viable. In fact the irony of the situation is, that as interest rates rise and my monthly profit reduces due to this, I will be actually be faced with an even bigger tax bill!

Paragraph 5: The governments commitment to a fair tax system
No other business is taxed in this way. No other business is taxed on interest on loans taken out to buy assets that generate taxable income. I believe that individual landlords who provide valuable housing across the UK are being unfairly discriminated against by the Government.

This change selectively discriminates only those who borrow against property in their rental businesses. The wealthy landowners who do not have mortgages on their property will not be affected. This tax proposal disproportionately affects middle-income landlords and goes a gainst stated governmental aims and fundamental principles of taxation.
" Taxation should seek to be neutral and equitable between forms of business activities"
It also goes
against the Government published Principles of Tax Policy 2011 which clearly states that "tax is levied on profits, not gross income " .

Paragraph 5: A personal perspective
I include myself in the most affected group for this tax change. I know a great number of landlords; we support each other to share best practice and learnings.
Landlords who have accountability not only to tenants, but to mortgage lenders as well ; keep themselves up to date and well educated in property laws, safety , benefits and place high importance on continued professional development .

This highly accountable group are the only affected group by this tax change. It would be an understatement to say it’s a shame to simply rip out this group from the industry.

The media has not helped, the making of TV shows showing landlords who rent filthy, damp and overcrowded properties. There is no way these terrible landlords have mortgages against these properties! No mortgage lender would approve these buildings as suitable to lend or, nor would the lender lend without legal correct tenancy agreements.

So, this tax will remove the well-educated responsible landlords, but leave some of the worst landlords still in the business!

Paragraph 6: Unintended consequences:

· This ill thought through tax change will mean that in order to remain in business, the rents would need to be increased. The tenants will suffer.

· Without profit, the landlords will not have money to invest in maintaining the properties to the high standards that you would wish to see.

· It is estimated that 20% (or more) landlords will leave the industry due to this one tax change. This will reduce the supply of rental accommodation. As explained before, removing some of the best and most educated landlords.

· A mass influx of property will temporarily reduce prices. Which although might sound good at first thought, but all those residential purchasers who used the Help to Buy scheme and are 90 to 95% mortgaged, will now be in negative equity.

· When this is combined with the permanent loss of rental houses due to the next round of ‘Right to Buy’, there will be a huge shortage of rental property.

· Potentially bankrupt landlords, who will then need government help to get back on their feet!

· Previous governments and banks have encouraged people to buy property to ensure financially secure retirement years for ourselves and not rely on the state as we age. Now we have followed this advice, we are now being discriminated against!

· This tax does not promote enterprise! Which business will be next; car rentals? Holiday rentals?

Paragraph 7: My suggestions:

The UK population is growing, the way we occupy houses is changing, less people in each household leading to more property being needed. We need to provide good quality accommodation and be respected as a rental business just as any other. So please give us landlords a chance to prove our business worth:

· I believe every landlord should take part in accreditation schemes to ensure they understand and comply with legal and safety requirements. For example the NLA and RLA are both excellent organisations providing education and support.
Those of us making an honest income from property letting business’s will have nothing to fear from the requirement of accreditation.

· I believe every landlord should be involved in Continuous professional development. This level of accreditation & CPD will remove the dis-interested landlords and also the landlords

Who do not supply good quality accommodation. They will leave the sector of their own accord.

· Create working groups with those of us running these businesses and yourselves in government. Work together to set standards for property & set standards for landlords. Working together to solve the housing crisis will be much more effective than making all middle income landlords bankrupt, flooding the market with properties, making thousands of tenants homeless and a crash in prices which will create a negative equity situation for our young home owners!

o PS – I’ll join a working group if you wish to set one up!

If the government want us to be incorporated to show our intentions are business minded, we will need help from the government to do this:

· Help us change the balance in the money lending markets as currently very few lenders will lend to companies at present. That’s why we aren’t companies now! Being sole traders does not make us ‘less business minded’ it’s purely a reflection on the very restricted type of lending available!

· Once there are available lenders in the market; set a future date – for example 1st April 2018, allow us to move our properties into Ltd companies as a one off event without the stamp duty & capital gains tax. If you want us to behave like businesses, please help us to do this without becoming bankrupt.

Thank you for reading my submission. Owning rental property is a business which supports the housing market; it contributes directly to the economy in the form of the tax
that landlords already pay on our real profits and provides housing for millions of people.

Please do not blame landlords for being the barrier to entry for first time buyers – the greatest barriers to entry are lenders affordability criteria & deposit size.

Please do not blame landlords for the increase in house prices – the UK’s highly restrictive planning permission framework & land banking by very large developers are the biggest culprits in my opinion. These two reasons contribute to the huge lack of new building by large developers but also small self build developers. If the government tackle the planning permission refusal reasons, then I am very confident that both small and large developers will start building at a faster rate! If the market had these new properties in it, the prices of property would find it’s own level without being artificially created.

September 2015

Prepared 14th October 2015