Wednesday, July 8, 2015

Renting Privately? Rent rises heading your way...

You would think the last thing the UK tax system needs is yet more complexity. But George Osbourne can't resist playing politics - with yet another budget announcement designed entirely around the headline it generates and to hell with the consequences.

And so in today's budget we have the hit on interest relief for buy-to-let landlords. As the budget report (para 1.191) says:
'The government will restrict the relief on finance costs that landlords of residential property can get to the basic rate of income tax. The restriction will be phased in over 4 years, starting from April 2017. This will reduce the distorting effect the tax treatment of property has on investment and mean individual landlords are not treated differently based on the rate of income tax that they pay. It will also shift the balance between landlords and homeowners.'
At this point I'm struggling to understand what this even means. The stuff about different treatment of landlords based on their tax rates is complete doublespeak - this _introduces_ differential treatment.

My understanding is that interest is currently a 100% allowable deduction against the rental income landlords derive from their letting business - it isn't a relief against tax paid, so who knows what the actual impact of this tax change is going to be. But I think we can safely assume that at soon as your income goes above the threshold for paying 40% tax, as well having to pay 40% tax on the additional income, if you have a buy to let property, something bad is going to happen to your ability to offset your interest costs against your rental income, and your effective marginal tax rate on each extra £1 of income will rocket - to 60% maybe - hard to tell - but yet another daft discontinuity in marginal tax rates depending on your circumstances, to add to the child benefit tax changes and other tweaking that now goes on at arbitrary points in the income scale.

The baying mob at this point is probably screaming, yeah, go George - stuff those evil buy-to-let landlords and their profiteering high rents. Personally, I think the baying mob is wrong. Rents are set by the balance between supply and demand (that's basic economics), not some grand collusion between millions of small landlords. Buy to let landlords frequently accept rents that represent a terrible return on a risky asset - 3-4% rental yield before costs in many cases - and interest is a very real cash cost to the landlord - it gets tax relief for a good reason.

But lets go with it, and assume you think this is a great idea in principle - let's predict what will now happen.

If you are an affected landlord, your marginal tax rate is now so high that buy to let property investment is not going to make much sense. If you are close to the higher rate threshold, you might decide to put more cash into your pension to go under the threshold, effectively getting relief on the pension contributions at your new much higher marginal tax rate and avoiding the new charge.

The more enterprising taxpayers who aren't in a position to do this, will look for other forms of tax avoidance. Maybe buy properties in a limited company wrapper, where interest will presumably still be a fully allowable expense. Cue dozens more pages in the UK's already overbloated tax code describing new emergency anti-avoidance measures the Chancellor will dream up to stop this wicked reluctance to submit to his will, and try to frame the circumstances in which a property sold to a limited company will be taxed as if it is owned by the person who owns some or all of the shares. This may work, but if so, it may also impact on companies like Property Partner, setup to provide easy access to the buy to let market for those that don't want to buy a whole property themselves (or will this just be an easy way round the new rules?).

But the most likely outcome is that many buy-to-let landlords on higher rate tax will choose to sell up. This will inevitably increase private sector rents. It may not be much consolation to those trying to buy properties either, as the lower funding from buy-to-let investors will probably also restrict the supply of new housing. Some new developments relying on the capital provided by buy-to-let landlords may not happen, or be seriously delayed, making things worse for everyone looking to buy or rent. There is also the regional aspect - in London I suspect almost all buy-to-let landlords are higher rate taxpayers, so the situation there for people looking to rent might deteriorate very rapidly.

There could be further knock on effects on the supply of private rental property, as even landlords not affected are aghast at the arbitrary nature of the changes made to the UK tax system, and decide their low returns on property don't reflect the risks, newly expanded to include political risks.

I am a buy to let landlord, but I think I am going to do OK out of this - my rent and my property value should go up in the medium term - I just pity people looking for private rental accommodation. I passionately believe that government should legislate in a way that really would seriously harm existing buy to let landlords investors like me - by making it easier for the market to build lots more houses, so that the market value of housing falls, reducing the cost to both buy and rent property - but I am still a landlord as sadly I don't believe they will do this any time soon. Indeed the change announced today will have the opposite effect - it will hit those currently providing a key source of funding for new housebuilding so reduce new housing supply, it will increase rents whilst creating a yet more complex tax code - this is another truly dreadful tax change.

Wednesday, June 10, 2015

Who'd be an MP?

The new MP for my neighbouring constituency, Lucy Frazer, made her maiden speech in parliament on 4th June. You can read the whole thing here - you might think it competent and pretty uncontroversial, whilst referring to the history of the area (that's what maiden speeches are supposed to be...). Indeed, shortly after it was made, Chris Stevens, the new SNP MP for Glasgow South West was moved to 'praise the maiden speeches we have heard so far today from the hon. Member for Bexhill and Battle (Huw Merriman) and the hon. and learned Member for South East Cambridgeshire (Lucy Frazer), despite our political and, as has been outlined, historical differences.'

The speech contained the following passage:
And it was the home of Oliver Cromwell, who defeated the Scots at Dunbar, incorporated Scotland into his protectorate and transported the Scots as slaves to the colonies. Now, there is an answer to the West Lothian question—but not one, of course, that I would recommend.
What to make of that? Reasonable attempt at humour - the absurdity of something as obnoxious as transportation being suggested as a solution to a modern political problem? Slightly ill-advised foray into a controversial (albeit nearly 400 year old) historical incident?

Fast forward a couple of days, and thanks to the power of the internet, how about these assessments:
Resign...your speech was disgusting
You are a disgrace to society
Bigoted disgrace. Shame on you.
Or maybe this one:
The only people you have to mock are your wanker parents who conceived you, and always keep in mind: You are a bloody parasite paid by our taxes, do not forget that hooker !!!
Then of course no assessment of a Conservative party politician is complete without:
Really quite racist in fact:
Your speech in the HoC has to be one of the most racist things I have seen in Parliament, you should apologise immediately
Or to go further:
Don't the Tories vet their candidates for nazi views before they select them ? Are you the MP for Auswich ? (sic)
You can read the full horror of some of the comments on a thread on Lucy's facebook page about a harmless meeting with a local housing association that has now had nearly 500 comments.

The joy of Facebook is you can find out much about the people making these comments. You can find what types of thing they link to and find amusing. I'll leave that as an exercise for the reader - but its no surprise that a great number of those commenting live in Scotland and probably have never met Ms Frazer or visited SE Cambridgeshire. I'm not shocked or outraged by the behaviour of the 'Cybernats' - I'm actually pretty sad.

Because at the end of it, you think 'who on earth would want to be an MP and have to put up with this level of appalling and undeserved abuse.'? And the answer is obvious - it will tend to be those that really couldn't care less about what people think of them or their behaviour. Our lovely friends from north of the border, once they calm down from their ultra-nationalistic fervour, might want to consider if that was really the outcome they were looking for as they typed away furiously on their keyboards.

Elsewhere in her maiden speech, Lucy mentions
My great-grandparents fled to this country with nothing, with no possessions and no money, not even speaking the language, and Britain gave them a home. It gave them hope and it gave them a future.
I just hope that there hasn't been too much of that optimism destroyed over the last couple of days.

Monday, January 19, 2015

Say yes to the New Chesterton Foot and Cycle Bridge

The distinctly anonymous ‘Friends of Ditton Meadows’ has been setup to ‘To protect Ditton Meadows from the current threat of development, namely the proposed cycle and foot bridge across the meadow.’ They have other objectives like ‘To oppose the talked about guided bus-way across the meadows’ and ‘To oppose any development on the meadows in the future.’ But as nobody is planning a busway or other development, it’s fair to say their main aim is opposition to a new cycle/footbridge across the common.

So what is planned? Fingers crossed, a new station will open in Chesterton in 2016. A new cycle and footbridge next to the existing railway bridge is being planned to link the common with the new station. The County Council has been and continues to consult residents on this project.

What impact will this have on the common? There are lots of pretty pictures of Ditton Meadows on their website - but not a single view pictured will change as a result of the proposed new bridge. That’s because it will occupy a tiny proportion of the common, and will only ever be visible with the backdrop of a not particularly picturesque railway bridge. I’m struggling to see how anyone can seriously oppose this on the grounds of its impacts to the commons as these are negligible.

However, not building the new bridge will be really BAD NEWS for lots of reasons. It will stop lots of residents of Abbey Ward and Fen Ditton from easily accessing the new station by foot and cycle (or at all!) – losing them much of the economic benefits. Some will drive, further clogging up Newmarket Road and Chesterton. Others will take the approx 1 mile detour over the Green Dragon bridge – like it isn’t already busy enough at peak hours. Fellow Chesterton residents will also miss out on a more convenient new route to Abbey, Fen Ditton and ultimately to the Mill Road area, Station and Addenbrookes, when the Chisholm Trail is built.

I hope our elected representatives will be supportive of the new bridge, but it would be a disaster if a few vocal opponents were able to block a vital part of the sustainable transport infrastructure needed in a growing Cambridge. Please don’t just rely on them to make the right decision – write to them today (you can use the website to find and contact your local Councillors) and urge them to make sure this bridge happens.