November 23rd: Judgement Day for Mortgage Interest Relief?

November 23rd: Judgement Day for Mortgage Interest Relief?

A Statement is defined in the Oxford English Dictionary as a “definite or clear expression of something in speech or writing”.  Yet as we approach this year’s Autumn Statement it is very hard to definitively predict what, if anything, this Chancellor might announce regarding the Private Rented Sector (PRS).  All we can see in our crystal ball is grey.

We are still vigorously campaigning for the Government to rethink the tenant tax, otherwise known as the changes to Mortgage Interest Tax Relief (MIR) in Section 24 of the Finance Act 2015.  The Autumn Statement is the last chance for Government to rethink the policy ahead of its implementation in April 2017.

To that end we have launched our (e) postcard campaign http://rethinktenanttax.org/ 

Despite over a year of intense lobbying, officials in the Treasury have told landlords they cannot imagine how the tax impacts on tenants.  So we thought we’d make it real simple, draw them a picture and send it to them on a postcard.

Please use it now – and tell your friends.

This Autumn Statement should be seen context however, and spoiler alert, there is not much sign of good news in the tea leaves for landlords.

Firstly the Treasury is still desperately in search of politically acceptable tax revenues.  Officials are treading a fine line of saying the economy is ‘delicate’ on the one hand and robust on the other.  Could landlords be in his sights?  

Then there is pressure on the Chancellor from the new Prime Minister (when are you no longer new anymore?) to look after the “Just About Managing” on middle to lower incomes.  Where is he going to get the money to do that?

Finally the Chancellor will likely re-confirm in his statement that the Bank of England’s Financial Policy Committee (FPC) will be granted new powers by the government to help it protect the financial system from future risks in the buy-to-let mortgage market.  From early 2017, the FPC will be able to direct the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to require regulated lenders to place limits on buy-to-let mortgage lending in relation to loan-to-value (LTV) ratios and interest coverage ratios (ICRs).

George Osborne clearly had a long term economic plan to try and reduce the proportion of landlords that currently own just one or two properties.  By not making the mortgage interest tax changes applicable to companies, there was a clear signal that they wanted as many landlords incorporated as possible, which he thought would help ‘professionalise the sector’ and make ‘accidental landlords’ a thing of the past.  Much better the school of thought goes to make being a landlord a full time profession than a part-time financial hobby.

He is (for now anyway) very much yesterday’s man though. His changes to Stamp Duty are already being criticised by some Conservative MPs and pressure groups such as the Taxpayers Alliance.  There may be some changes here, however whilst we would love for the surcharge to be abolished, we are not overly encouraged in those odds.

We have been here before remember with Capital Gains Tax (CGT).  The March 2016 Budget (what an eternity ago that seems now) included a cut in Capital Gains Tax but not for residential property.  Amazingly recent polling suggested that some landlords still don’t understand CGT. Details of NLA run courses and upcoming course dates can be found here.

There is therefore a slim possibility the Chancellor may go further than his predecessor and speed up MIR reforms.  There is also just as big a chance though he wont announce anything at all and leave any announcements until later budgets or in the Housing White Paper.

There has been a broader shift in policy towards housing however which makes it less doom and gloom for the sector. The Housing Minister Gavin Barwell (whom the NLA have a very good relationship with) indicated at a fringe event at the Conservative Party Conference, that the Government would take a more flexible approach to the inclusion of rental properties as part of its goal to build 200,000 homes.  While he said that he did not want to “fundamentally shift” policy away from ownership he acknowledged the growing number of families living in the private rented sector.  This is also an acknowledgement of the”positive impact of buy-to-let landlords in the economy, and the role they play in widening and balancing the overall housing market.”

These comments suggest that the upcoming Housing White Paper will contain measures to support the creation of homes in the rental sector. Some of the more significant elements of these plans may also form part of the Autumn Statement.

We also know however that following on from the Making Tax Digital consultation, the Treasury is expected to publish draft clauses for the Finance Bill 2017 in order to legislate for new tax return requirements. In their current form, these proposals would mean unincorporated landlords who earn over £10,000 have to maintain digital records and update HMRC at least once a quarter.  You can read more about the changes here.

So in (unhelpful) conclusion, whereas the previous Chancellor’s view of the PRS was very black and white, Philip Hammond’s remain (for now) very much a shade of grey.  The PRS is holding its breath waiting for the former property developer and landlord to show his true colours.

Give him a nudge and email him today.

3 thoughts on “November 23rd: Judgement Day for Mortgage Interest Relief?

  1. Get the box and padding out, given recent history it’s hard to see anything but another boot to the goolies coming up.

  2. It’s very simple – the landlords may well pass this on to their tenants in the form of rent increases. To ‘cripple’ those who have invested in properties like ourselves and keep those properties to a high standard it is very unfair for the government not to pass the same duties on to the corporate landlords some of which housing is of a much lower standard of maintainance than ours!!! To say that we are only ‘playing at this’ -is nothing but a shameful dismissal of people like ourselves offering good rental accommodation even if we are getting a reasonable return However; after tax and maintainance there isn’t much of a profit margin to play around with. The ultimate alternative would be very bleak for those looking for rental accommodation; whereby all the landlord has to do, is sell their private property and get the increased market value. We have looked into what we would have to pay back and we could afford to sell if necessary. We are fortunate that the tenants we have, are looking after the properties they are renting and we are more than happy with them; so much that we have not increased any rent since their moving in. I am sick and tired of being punished for unscrupulous landlords and being classed as one by unwitting members of parliament who have no idea of my circumstances or the hard work both myself and my wife put in to keeping and maintaining the two detached houses we have, for which we have worked hard and made sacrifices in the process. The MPs make it sound as if it is a crime to have anything of such value, as if the ordinary hardworking person should not be allowed to have anything without severe taxation in one form or another – I do not consider my investment as a ‘Hobby’ but a serious professional commitment. I am a better landlord than most ‘Professional Corporates!’

    1. You forget that these tax attacks are not based on reason, they are based on populist soundbite seeking. It’s a classic politics play to divert attention from some awkward situation by creating a demon and then being seen to attack it.
      In this case, decades of planning policy (aka pandering to the NIMBYs) has constrained supply, and in a free market, when supply is constrained then prices go up until demand is similarly constrained to the same level. But the government don’t want to have to admit that they (and preceding governments of all colours for the last several decades) are largely responsible – by constraining supply fo building land via planning policy, and by constraining supply of social housing by forcing councils to sell off their stock (good measure, I live in an ex council house, and mixing the tenure has done no end of good for the area) but not allowing/supporting it’s replacement (bad). To avoid having to admit that they are responsible, they play to the media and turn the dirt laden fan in our direction – and unfortunately, the people that matter (which for politicians is the people who will vote them in again in a few years) fall for the outright lies.
      There may well be some reasonable issues (such as the worry about the amount of BTL lending and the risks of destabilising the market if too many over-geared landlords sell up ina downturn) underlying the changes. But again, these are symptoms of other underlying issues – not the cause.

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