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Then, in 2009 the Irish government disallowed 25% of the interest cost in calculating a landlord’s taxable profit. This was retroactive because it applied to properties that were already owned, not just future purchases.
This was partly amended as from 1 January 2016 because of the shortage of accommodation for tenants in receipt of certain social housing supports. Home providers taking such tenants were now be able to deduct 100% of their interest cost.
In October that year the Irish minister for finance said the remaining landlords would be able to deduct 80% from 2017 instead of 75%, because of the housing crisis. The allowable deduction was to increase by 5 percentage points each year until it reached 100% in 2021.
Then in January 2019, full deductibility was restored because of the adverse effect on the supply of housing in Ireland of disallowing 25% of interest.
Osborne’s Section 24 is more draconian that either of the Irish experiments. Unlike the first one, it is retroactive, affecting loans that were taken out years or even decades before 2015.
Unlike the second one, where 25% of the interest cost was taxed at 40% or 45%, Osborne’s Section 24 taxes 100% of the interest at 20% or 25%.
The longer it takes for Section 24 to be repealed the worse the homelessness figures and the cost of temporary accommodation will become.
Consciously or not, Mr Mercer makes Buy to Let sound like a tax avoidance scheme. The Government did not reduce tax benefits. What George Osborne did, supported by David Gauke, was impose a tax on finance costs including mortgage interest - an indebted landlord’s biggest cost - under Section 24 of the Finance (No.2) Act 2015. Previously, finance costs had been fully deductible, as they are still for every other type of enterprise in the country, under Generally Accepted Accounting Principles.
This means that, in addition to paying tax of up to 45% on their real rental profits, landlords will have to pay tax equal to up to 25% of their interest.
Osborne announced this drastic change without any prior consultation with the industry It increased the amount of income tax that individual landlords have to pay. The announcement came a few weeks after David Cameron had promised that if the Conservatives were re-elected there would be no increase in income tax during the ensuing Parliament.
The rate of tax can exceed 100% of the real rental profit. Landlords will have to pay the extra tax even if they make a pre-tax loss. The tax rate on zero profit will then be infinite. If they can’t pay it, HMRC will bankrupt them.
To fund the increase in tax, landlords have had to increase rents. Tenants on capped benefits cannot afford the increases and are being evicted to make way for working tenants. That is one way in which Section 24 is causing homelessness. The other way is by forcing landlords to evict tenants so that they can sell, thereby reducing the supply of rented accommodation and so forcing up its price. Thanks to Osborne and Gauke.
“However, in 2015 the Conservative Government reformed the tax treatment of rent to buy”.
The author means buy to let, and is referring to Section 24 of the Finance (No. 2) Act 2015 which was announced by George Osborne in the summer budget of that year.
Section 24 restricts the allowable deduction of mortgage interest and other finance costs from rent receipts in calculating rental profits. On top of the 40% (or 45%) tax on the real rental profit, section 24 imposes a levy of 20% (or 25%) of the finance costs. Tax on rental income can exceed 100%, and is even payable when a real rental pre-tax loss has been made.
To use the author’s own words, this is a retrospective raid on people’s assets. People, including some who are not so rich, have invested in property under certain rules, and have had their savings ripped off them, while other people who invested their money in other things have not. This is arbitrary and unreasonable and was challenged in court
But the Conservative Government’s theft was upheld.
He wrote “we say to the land monopolist - "This property of yours might be put to immediate use with general advantage. It is at this minute saleable in the market at 10 times the value at which it is rated. If you choose to keep it idle in the expectation of still further unearned increment then at least you shall be taxed at the true selling value in the meanwhile."
SELLING not RENTAL.
You are clearly opposed to the private rented sector. I cannot afford to devote any more time to rebutting your lies and correcting your drivel.
“In contrast, products that are disruptive go after non-consumers that are priced out of the market. They are inferior to today's products in some dimension that's important to today's customers - allowing them to safely go under the radar of existing players.
Airbnb is the classic example of a disruptive product
At the start, Airbnb allowed you to sleep on an airbed in some random person's living room for a really low price. People that were attracted to Airbnb were not the same people that were attracted to Marriott as it had none of the good qualities of a hotel. It's business model allowed for these low-value customers because it didn't require Airbnb to own the property or employ the operating staff. A low-cost solution to a low-value customer.” If you want the source, google some of the text.
So your fundamental point is that a building needs land. Brilliant!
Osborne’s levy on interest started in April 2017, but had been announced in 2015. So to avoid bankruptcy, landlords increased rents to meet the levy or sold up. Tenants on benefits who had been paying below market rent were replaced by self-sufficient tenants, and became homeless.
I do not know why you used the word “logic” in your last sentence, it is so out of place there. There is no connection between Osborne’s levy of 2015 and what happened in the last century. Because of lifetime tenancies, and controls which kept rents artificially low, sitting tenants reduced the value of the properties they occupied. When they died, the owners were only too glad to be able so sell at market value. It was not a question of landlords increasing rents or selling up causing tenants to leave, it was their departure that allowed landlords to sell.
I agree with your statement that each location is its own little unique location, although you may be capable of arguing otherwise. But to claim that this makes it a natural monopoly would have made even Humpty Dumpty laugh.
Your attempt to paint private landlords as profiting from natural monopolies is risible. Give it a rest.
He was promoting a social agenda at a time when the infant Labour Party had only 29 seats.
If you read the speech you will see that he was complaining about people who held onto agricultural land on the outskirts of conurbations waiting for its value to go up before selling it for development in order to increase the windfall gain. It was not about landlords of properties within those conurbations.
He proposed taxing the land on its notional selling value in order to force the owners to sell it for development. I don’t know if such a tax was introduced when he was a Liberal Minister or when he was a Conservative Prime Minister.
Ironically a Green Belt around London was proposed in 1935 to prevent just the sort of unrestricted sprawl of the conurbation that Churchill’s proposed tax would have encouraged.
I am not referring to the modular homes in Richmond that are smaller than building regulations allow, because they are aimed at high value customers.
I am referring to the office blocks which did not need planning approval before being converted into tiny dwellings that councils are sending their homeless to live in.
And the number of homeless people is increasing because of George Osborne’s Section 24 levy on mortgage interest, which is driving landlords out of the market. Abolition of Section 21 evictions will drive even those without mortgages out of the market.
A natural monopoly is something like a water company whose infrastructure costs are so great that no-one would want to set up an entity to compete with it. By definition, landlords, in the plural, cannot be natural monopolies.
On the contrary, with websites like Rightmove and Spareroom displaying the rents, details and photographs of every available property in the UK - whose owners are competing with each other for tenants - the private rented sector is as close to an example of perfect competition as I can think of.
Hundreds of thousands of London landlords compete with each other without owning land. Do not be confused by the first syllable: landlords do not necessarily own land. I do not own the land beneath the blocks in which my flats are located.