A call for £50,000 of funding for a legal challenge to the Chancellor’s tax grab on landlords on Boxing Day was successfully reached by the end of the Christmas/New Year break. Steve Bolton, who runs a buy-to-let training franchise company, had commented: “It’s not clear why the Government has chosen to just launch an attack on buy-to-let owner-operators with mortgages. It’s a tax from Alice in Wonderland – truly absurd and divorced from real life. Not only is this tax grab unfair, undemocratic and underhanded, but we believe that it could also be unlawful.”
Well, he proved pretty successful, so far – by the weekend the crowd-funding approach being used to raise the funds could no longer accept pledges to back the campaign:
Property 118 and Property Tribes (two invaluable resources for landlords) had picked up on the story like this, and called for landlords to get involved:
I thought the comments from Lord Flight, a Conservative Peer, in a letter to the Chancellor summed up some of the reasons why we become buy-to-let landlords in the first place: “A lot of Buy to Let investment has been an alternative to saving for old age via pension schemes. Up until World War II investing in rented property was the main method of providing for an income in old age. Given the poor performance of the Stock Market over the last 20 years, it is hardly surprising that many people have opted for Buy to Let investment as an alternative source of retirement provisioning. But Buy to Let does not enjoy any of the major tax advantages of pension saving, i.e. tax credit on the amount invested and accumulation of income and capital gains tax free within the pension scheme. The only Buy to Let “tax advantage” has been the ability of the interest cost to be offset against an individual’s income to determine their tax rates/bill – the very thing which you have attacked.”
I have picked up on responses to previous blogs suggesting the alternative view, that buy-to-let landlords fuel price rises that prevent tenants from achieving home ownership and enjoy “unfair tax advantages” in doing so. I think Mark Alexander of Property 118 nails this myth pretty decisively: BTL was only responsible for one-twentieth of the 150% price increase between 1996 and 2007, which is insignificant. Prices would have gone up even more if BTL had not financed the 2.5 million increase in supply – and so would homelessness. Deducting finance costs from rental income is not a tax relief it is normal accounting practice everywhere, and for every business. That is why Lord Flight put “tax advantage” in inverted commas.
So, some reasonable conclusions to be drawn from all of this might be:
- Tenants won’t gain from the tax hike – rents will either rise and/or supply of homes fall as landlords drop non-viable homes from their portfolios
- Landlords only came into bricks and mortar anyway because of the inadequacy of alternative options for investment…and Government policy was strongly supportive because of the need to provide housing in the absence of a stitched together housing policy
- Landlords don’t fuel price increases, the market does that pretty effectively itself (and evidence from the backroom boys at the Bank of England shows that landlords buy at discount, not driving prices upwards – see my blog October 6th 2015 http://bankunderground.co.uk/2015/07/21/five-facts-about-buy-to-let/)
- This tax grab was just a populist move by a Chancellor backed into a corner by an ill-thought through attempt to strip tax credits from folk, which backfired and forced him to adopt an attack on an unpopular body – landlords in general.
For all parties, landlords and tenants, setting aside prejudices that don’t accord with the true facts and seeking to remove this assault would make sense.