Finance Bill

Written evidence submitted by Gary Bartram (FB 09)

The proposal to restrict ‘deductions for finance costs related to residential property' announced in the Summer Budget: an examination of anti-landlord prejudice and the myths perpetuated about UK private landlords, which has led to this decision.

My background:

First, a brief note about myself: My name is Gary Bartram and I am the director of a letting agency with four members of staff. I also own a small portfolio of properties including single lets and an HMO. My concerns are two-fold with regards to the tax proposal to limit ‘mortgage interest relief’ on rented properties. Many of our landlords are saying that if this goes ahead they will be forced to sell; indeed some are already planning this. This could have a serious impact on my business and endangers the employment of my staff. 

From a personal perspective, working so hard to build up the deposits for my houses and now producing good quality housing in Peterborough for my tenants, it feels like all this hard work could now be wiped out and seriously damage the financial standing of myself and my family. At the very least, I will be forced to put rents up which will impact on the tenants that I have worked so hard to provide a quality home for. 

I put my hard-earned money into a property business knowing that business and taxation principles mean that turnover minus expenses equals profit. The Chancellor is attempting to rewrite this. One cannot equate running a property business with investing in shares. Share- investing does not involve being called out at all hours for tenants who have lost their keys, or trying to ring around to find a contractor because a leak has appeared whilst you're out with your family on a Sunday. Share-investing is a quickly disposable form of investing. It's not easy to sell a house, not counting the impact that this has on the family that has made it their home.  It is possible to use controls such as stop losses with shares so you don’t get into trouble.  Alas whilst you can take precautions with property, there are never guarantees that some bad tenant is not going to trash your house, or run off without paying.

From our experience, many people don't want to own a house. They want the freedom to be able to move around, they want to know that when an issue occurs with the house, it is fixed without them having to dip into their overdraft or take out a 5 year loan for a new boiler that is beyond repair. They also don't necessarily want to save for a deposit. It is fixed- price living for those who want it. Private landlords are providing a service for this country's residents and should not be persecuted for it just because the Chancellor thinks we are an easy target or can be made into scapegoats to win a few votes. Landlords provide an essential service and should be supported in this and not demonised and ‘punished’ as though we have done something wrong. 

1. Summary:

This is a brief examination of anti-landlord prejudice. It is my contention that the Government’s grossly unfair and discriminatory decision to single out private landlords and no longer allow them to offset all of the finance costs of their business can only be explained within the context of anti-landlord prejudice. All other advanced countries acknowledge the essential role of landlords in providing accommodation for the population, and have far fairer tax policies which support the private rented sector. If this decision goes ahead, the UK will stand alone as the only country in the civilised world which intends to abandon the centuries’ old practice of taxing actual profits; replacing it with a bizarre policy of taxing revenue. Myths about landlords have undermined our work for many years and this has now culminated in this most serious attack on the private rented sector in modern history.

2. Myth 1: The tax change is necessary because landlords enjoy a tax advantage compared to owner-occupiers/first-time buyers.

Reality: Internationally, all other countries in the G7 and Europe allow landlords to offset finance costs, as this is normal business practice; to tax businesses on turnover makes no sense. Other countries do not compare the business of renting houses to being an owner-occupier (this is comparing apples with pears). The Government should cease calling this ‘the provision of tax relief’ to landlords; it is the offsetting of business costs and not a gift bestowed by the Government. If, however, this comparison is made, then the general consensus among economists in the UK is that the unfair advantage runs in the opposite direction and that the tax system massively favours home-ownership. (1)

3. Myth 2: Private landlords are responsible for house prices rising.

Reality: ‘Only 7% of the 150% rise in property prices between 1996 and 2007 was attributable to increased lending to landlords.’ (2)

4. Myth 3: Landlords stop people from buying their own homes.

Reality: Millions of people rent in the UK who, at any given time do not want to buy their own homes. Many of these fall into the following categories: approximately one million students, 5 million migrant workers; 9 million economically inactive people between the ages of 16 and 64; 5 million low-paid workers; and an unspecified number of workers who prefer to rent for job mobility or who have no interest in buying (e.g. because of the insecurities of rising interest rates, maintenance costs and so on). For many, choosing to rent is a lifestyle choice (3). Of those who do wish to become owner-occupiers, the main barriers include: saving for a deposit, satisfying mortgage companies’ criteria and being able to buy in the area they would want to. Landlords are not to blame.

5. Myth 4: The landlord-tenant relationship is fraught with conflict and landlords are ‘bad’ people, deserving of vilification.

Reality: The majority of tenants in the private rented sector are happy with their landlords. (4) The Joseph Rowntree Foundation observed: ‘The private rented sector is relatively good at doing what it does at present, but there are limits to what it can do.’ (5) Only 6% of tenants feel their relationship with their landlord is bad or very bad. (6) In addition, 84% of private tenants are satisfied with their property (7). At the same time, there is evidence that Housing Association tenants’ levels of satisfaction are falling (8).

6. Myth 5: Landlords make excessive profits from renters.

Reality: The profit margin s for most landlords are modest and 21% of landlords make no income fro m the properties they rent out (9 ) . Ta king the example of a landlord with a portfolio valued at £1,500,000, mortgage debt of £1,000,000, rental income of £100,000, mortgage costs of £40,000 and other costs of £40,000, and net profit of £20,000 before tax, gross yield is currently 6.67% and the net yield (after tax @ 40%) is 0.8%. With the proposed tax measure, the gross yield would remain the same but the net yield would reduce to 0.07%. This very low rate of return is not attractive and will result in landlords exiting the private rented sector.

8. The perpetuation of these myths about landlords does great harm and I believe these myths contributed to the decision on restricting landlords’ rights to offset the costs of their business, which will lead to a great injustice being perpetrated; one which will ruin people’s livelihoods and pension arrangements and disrupt a huge number of households in the UK.

9. The Government should, as a matter of urgency, set up a Royal Commission into the future of housing in the UK, so that the role of the private rented sector and individual landlords can be considered in a wider context and dispassionate manner; rather than singling out landlords for extraordinary measures. The Commission should make recommendations for each part of the Housing sector so that a joined up, holistic approach to housing policy emerges.

10. As landlords, we are aware that we are being blamed for the housing crisis and clearly this is ludicrous. We have been the subject of countless pieces of legislation over recent years, often accompanied by unfounded generalisations about landlords. We should rather be incentivised to help the UK emerge from its housing crisis.

11. Whilst we acknowledge that there is a strong anti-landlord brigade in the UK, we also appreciate the support we receive from several quarters. Most recently, the Daily Telegraph has decided to run a campaign to ‘Axe the Buy to let Tax Grab’.  Writing in the Telegraph on 22 August 2015, Richard Dyson wrote: ‘George Osborne doesn’t have a clear philosophy on tax and how a tax system should work to help an economy grow and help people prosper. Like Gordon Brown, who did so much to destroy a culture of investing – damaging both savers and enterprise – Mr Osborne tends to grab and snatch revenues as he can, with his guiding principle being to snatch from the areas where he’s least likely to encounter resistance. You can hate landlords and lament the rise of buy-to-let as a favoured investment of the middle classes. But even if you do, you must surely also condemn the action of a Chancellor who, out of nowhere, has announced the destruction of this asset class for all except the very rich’ (10).

12. Dyson goes on to say that: ‘this tax change, which was called for by cynical politicians and commentators hoping to strike a populist tone, sets a new benchmark of absurdity in Britain’s already ludicrously complex tax regime. We now have a tax which is applied at a rate of more than 100pc on investors’ returns. We now have people paying tax on zero income. We now have a tax regime that appears not to be able to distinguish between revenue and profit. There are other less philosophical objections. Where will the councils find the extra money to put yet more people into short-term accommodation when their book of private –sector landlords shrinks? More importantly, what will happen to families and individuals forced out of their houses as landlords sell up?’ (11).

13.Dyson says: ‘this Alice in Wonderland Tax sets a new benchmark in financial absurdity’ and he believes that the tax change will be the ‘death of buy to let.’

14.Finally, in a letter dated 29 June 2015 to the Chancellor of the Exchequer about the need to improve the efficiency of the tax system by simplification, the Rt Hon Andrew Tyrie MP, Chairman of the Treasury Committee, quoted Colbert saying we need to ‘pluck as many feathers from the goose with the least amount of hissing.’ As a landlord (the goose) I am at risk of losing all my profit (my feathers) as a result of this proposed tax change. I intend to continue my campaigning (hissing) against this absurd tax change until the Government sees sense.

August 2015

References:

(1) Submission to the Public Committee by Dr R Beck, which outlines the preferential treatment of owner-occupiers compared to landlords.

(2) Report published in 2007 by the National Housing and Planning Advice Unit: http://webarchive.nationalarchives.gov.uk/20120919132719/http://www.communities.gov.uk/documents/507390/pdf/684943.pdf

(3) Report by Savills and Rightmove on ‘Rental Britain’ (2012).

(4) Rugg Report 2008.

(5) Joseph Rowntree Foundation report on the PRS (2010).

(6) http://www.propertyreporter.co.uk/landlords/research-dispels-bad-landlord-stereotype.html.

(7) http://news.rla.org.uk/growing-number-of-private-sector-tenants-satisfied-with-their-property/ ; 2012-13 English Housing Survey ‘Households Report.’

(8) http://www.insidehousing.co.uk/exclusive-tenant-satisfaction-dips-at-uks-largest-associations/7006938.article.

(9) https://katefaulkner.files.wordpress.com/2015/02/independent-report-prs_final.pdf .

(10) http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11816733/Alice-in-Wonderland-buy-to-let-tax-sets-a-new-benchmark-in-absurdity.html?fb_ref=Default

(11) http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11816720/Death-of-buy-to-let-landlords-wake-up-to-Osbornes-150pc-tax.html?fb_ref=Default

Prepared 18th September 2015