Finance Bill

Written evidence submitted by Craig Holmes, landlord and letting agent (FB 63)

1. Introduction.

1.1. My background is that I have been renting out properties since 2004. I have a portfolio of 20 properties.

1.2. I am also a Director of a letting agency. The letting business has over 200 properties under management.

2. The proposal to restrict finance cost relief for individual landlords

2.1. I object to the proposal for the following reasons:

2.2 The proposal is unfair as landlords will be taxed on a significant part of their turnover, not on their profit. Restricting the tax relief is contrary to how all other finance costs are treated for sole traders. I have calculated that the effective tax rate on the rental profits generated by my portfolio with the proposed measure fully implemented will be 60% if all other factors remain unchanged. This means that for every £100 profit my portfolio generates, £60 will be paid in tax leaving me with only £40. How can it be fair that I will be required to pay 60% tax on a modest profit when the highest paid footballer in the UK, Wayne Rooney, pays 45% tax on his £17,000,000 per annum earnings? If interest rates go up by 1.5%, I have calculated that I will make an operating loss but will still have tax to pay on the ‘deemed’ profit of my portfolio. No other business is expected to pay tax when they make a loss. The tax proposal is grossly unfair and will result in many landlords exiting the private rented sector.

2.3 It is not appropriate for the Government to compare the tax treatment of landlords with ordinary homeowners. They are comparing apples with oranges. Landlords are buying income generating assets and providing a service to tenants who either choose to or need to live in private rented accommodation. Ordinary homebuyers are buying houses to live in, rather than buying houses to generate income. Landlords pay tax on their rental profits and pay capital gains tax. Ordinary homebuyers do not pay capital gains tax.

2.4 The HMRC impact assessment states that there will be no impact on business. I disagree. The proposal will have a significant impact on my letting business. Most of the properties under management by my company are owned by individual landlords. Many of these landlords are higher rate tax payers and will be affected by the proposal. Some of the landlords are currently basic rate tax payers but because of the way that the measure is to be implemented they will become higher rate tax payers and will be affected by the proposal. Since the Summer Budget announcement I have been contacted by many of my landlords, some are telling me they will sell all their properties whilst others are telling me they will be reducing the number of properties they own as buy to let will become too risky and will not be financially attractive. Some landlords intend to increase rents if the tax proposal is implemented in its current form. Landlords will onIy continue to own rental properties if they are making a profit. My letting business currently employs 4 staff. If the number of properties under management reduces significantly, and this is likely from the information I am receiving from my landlords, I will need to reduce the number of people employed by my business.

2.5 My main concern about the proposal is that it is being applied ‘retrospectively’ in that the restriction on financer cost relief will apply to long term borrowings taken out in advance of the tax change being introduced. I have borrowed substantially to build my portfolio. I do not have a pension so my portfolio is intended to provide me with an income when I retire. I made my decisions to buy rental properties based on the tax laws that existed at the time. I had no reason to anticipate that such a significant tax change could be introduced that would affect the viability of my business. Had I known that it would not be possible to offset all my finance costs against my rental income, my approach to borrowing would have been different. Buying property is a long term investment. Most of my mortgages are for 20-25 year terms. The mortgages cannot be repaid in a short space of time. Selling properties to reduce debt will create capital gains tax liabilities. Incorporating will also create capital gains tax liabilities. Adjusting to the proposed tax change for many, including myself, is difficult, so the fact that it is proposed that the tax change is phased in is no consolation.

3.0 Proposed amendment

3.1 To address the unfairness of the tax proposal, and to protect the viability of existing property companies and other businesses that are reliant on a healthy private rented sector, I wish to put forward a proposed amendment and would hope that an MP will formally table this as an amendment to the Finance Bill. The amendment is intended to avoid the tax being applied retrospectively. The amendment is as follows:


At 272A, Delete subsections (1) to (6) and replace with

"272A Restricting deductions for finance costs related to residential property

(1) in calculating the profits of a property business for income tax purposes

for the tax year 2017-18 or any subsequent tax year, no deduction is

allowed for costs of a dwelling-related loan where the loan was written after 5 April 2017.

(2) Subsection (1) does not apply in relation to a property business

carried on by a company otherwise than in a fiduciary or representative


(3) Subsection (1) does not apply to dwelling-related loans where a remortgage has been carried out after 5 April 2017 and the amount borrowed does not exceed the amount of the dwelling related loan outstanding before 6 April 2017.

(4) For the meaning of "costs of a dwelling-related loan" see section 272B.

3. 2 . Th is amendment, together with anticipated action from the Bank of England to control the growth of the buy to let market , will ensure that the housing market does not become unstable. If the tax proposal goes ahead in its current form, there is a risk that landlords will flood the market with houses for sale, thus creating the unstable housing market the Bank of England warned about earlier this year .

4.0 Conclusion

4.1 This proposal will have a devastating impact on my property business and on my letting company. I urge the Government to scrap the measure or amend the Finance Bill as set out above.

4.2 There is a housing crisis in the UK with not enough houses being built to cope with the demand for housing. The proposed tax change for landlords will result in investment in housing declining at a time when more houses are needed. This is entirely the wrong approach. What is needed is more investment in housing of all tenures. Not everyone wants to or can afford to own a house. There is not enough social housing because much of the stock has been sold under right to buy legislation and financial constraints have limited the scale of new affordable housing that is being built. Landlords will not be able to increase the rents of tenants who are in receipt of Housing Benefit and so will be forced to evict the poorest members of society. Local councils will have to find them more expensive temporary accommodation which will increase both the cost and the administrative burden.

4.3 The private rented sector has grown in recent years because there is demand for private rented housing. For this reason, the sector should be supported and there should be fair treatment for landlords.

September 2015

Prepared 14th October 2015