Campaigns Finance and Taxation Reform

Labour call’s for Government to target incorporated landlords

Sally Walmsley
Written by Sally Walmsley

A Labour shadow minister had urged the Government to take action to make sure landlords who have incorporated can’t recoup the cost of tax changes next year.

Shadow Communities and Local Government Minister Lord Beecham (Labour) has tabled two written parliamentary questions asking:

  • Will the Government take steps to ensure that limited companies are not better placed than other landlords in relation to the taxation of profits engendered by letting residential properties?
  • Will the Government introduce plans to prevent landlords of residential properties from recouping the cost of changes to the taxation of rents of such properties which will come into force next year; and if so, how?

Landlords are already facing an anxious wait following Philip Hammond’s announcement that the Government is planning a review into the way incorporated businesses are taxed in the Autumn Statement.

In his November 23rd speech he said: “Technological progress is changing the way people live, and the way they work: The tax system needs to keep pace.

“For example, the OBR has today highlighted the growing cost to the Exchequer of incorporation.

“So the Government will consider how we can ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base as the economy undergoes rapid change. We will consult in due course on any proposed changes.”

Tens of thousands of landlords made the decision to incorporate following last years’ Mortgage Interest Relief announcement in a bid to reduce tax liability.

Please let us know your thoughts in the comments section below or on our Member’s Forum.

About the author

Sally Walmsley

Sally Walmsley

Sally Walmsley is the Magazine and Digital Editor for the NRLA. With 20 years’ experience writing for regional and national newspapers and magazines she is responsible for editing our members' magazine 'Property', producing our articles for our news site, the weekly and monthly bulletins and editorial content for our media partners.

16 Comments

    • How can it be a fairer system when the gist of it is that both individual and incorporated landlords would, as a result, be taxed in an entirely different manner from EVERY OTHER BUSINESS IN THE LAND? The only way it would be remotely fair is if the entire tax system is brought in line and every other business gets taxed the same way. Which is never going to happen, so why should landlords of any variety be penalised through the tax system relative to every other type of business? Every other business can deduct legitimate operating costs, including finance costs, before declaring a profit figure to be taxed, what’s so despicable about landlords that they should be denied the same?

      • Paul, I have to ask, are you really running a full time business?

        And by that I mean:

        1. Creating jobs and wealth through the employment of individuals who produce tangible outcomes for both you and your customers.
        2. Have tangible business assets and costs, such as office space, IT endpoints and infrastructure.
        3. Contribute to the wider U.K. economy through PAYE, NIC’s, Corporation Tax, CGT and so on.

        As a legitimate business owner and someone who is currently renting due to the catastrophic HPI situation created by TPTB, Banks and individuals like yourself, I have zero sympathy.

        If you are a professional landlord then you will not be an over-leveraged buffoon and these changes will have little impact, so relax.

        • Hello Ian
          I wish people should really try and learn about the issues before they start rubbishing others’ genuine concerns. I am a landlord, and have been selling my portfolio because of this new rule.

          I had 14 properties all with large mortgages, so I am one of these over-leveraged buffoons. Average rent £1000, mortgage interest £650. It gave £350 gross profit each month, a total of £4,900 p.m; £59,000 a year approx.

          I employed two part time single parents to help with management and Lettings. They fitted their time around their kids schooling and nursery. I did most of the repairs myself, but sometimes paid for help. I provided a service, paid staff, paid NIC and the other things you seem to think are the only things that make a business. After all wages and costs, I had a net profit of about £20,000 a year. My personal tax used to be about £4,500 and I took home £16,500.
          Once these changes come in, it has been estimated I will have to pay an extra £22,000 of tax. This is because my interest cost of £109,000 will now be totally ignored, I must pay tax on the rental money I used to use to pay that interest (109K @40% less a 20% rebate).

          How on earth can I afford such a levy!

          Never mind the injustice of moving the goal posts after I had invested my redundancy money across a few properties under the rules at the time I had borrowed; never mind the other problems of fairness others have complained about. Fair or not (which it clearly isn’t), the stark reality is that I cannot survive, so I have to exit the business.

          1. My two staff have gone. Their income gone. YOU now have to pay their social security money (through your taxes).
          2. My tenants were evicted as I sold. Obviously some other families have moved in, but some of our tenants were mainly social tenants. YOU now have to pay for them to be rehoused by the council.
          3. The working tenants are now looking for some new places to rent. They have increased the demand for rentals which would push up rents – YOU now have to pay higher rents.
          4. As for me, my old income goes, I will have to start eating out of my capital as I cannot get dole with that amount of cash. Alternatively, I plan to keep about 2 properties. I should own them outright after selling the rest and paying back all the loans, so I should be able to get £2000 rent in total. After taking into account voids and repairs I expect a net profit of about £18,000. It’s not too terrible for me. At the old £20k I paid an extra little bit of tax, which YOU now have to make up in your taxes.

          So Ian (or should I say, Jack?), I’m alright! But, unlike you, I do care about those who are worse affected than me, not just the “over-leveraged buffoons”, but also people like my former tenants who lost their homes, and the two mothers I’ve had to sack!

          • Thanks Dubin,

            Kind of don’t know where to start, but Philip J has nailed it below, the new taxation structure is a tax on debt/leverage, those not heavily leveraged will be fine.

            “14 properties all with large mortgages” wow! From your response you seem to be an eloquent and intelligent human being. Nobody forced you to take on this mountain of debt, you could have said no.

            I wonder how many of those 14 properties would’ve gone to FTB’s or owner occupiers, if the banks and government hadn’t created a market and favourable tax regime unfairly stacked in favour of BTL landlords. Perhaps some of your own tenants would’ve been able to afford them, if you and many other amateur landlords had not embarked on the most reckless, debt fuelled folly the UK has ever witnessed.

            Finally, sorry to break it to you but house prices AND rents are on their way down. Your friends at the local Estate Agents know it, us tenants know it and see evidence all around us. How long is it going to take the average BTLer to shake off their denial?

  • More and more abuse to landlords, government introduce interest relief, wait for loads of landlords to move properties into ltd companies, 1 year later request to tax them at the same level because it isnt fair. Whats not fair is interest relief in general, people are still going to need to rent, everything the goverment is doing is going to restrict supply and push up rent. End looser is going to be the renter again who is going to have even less disposable income to save for a deposit. Which defeats the whole purpose of what the goverment is trying to achieve.

    I cant even understand how will they could make it fair as corporation tax is 20% going down to 17% and interest relief is set to lower tax income bracket which is 20% anyway.

  • Many Landlords are now Incorporated and so any attempt to force Incorporated Landlords to pay more Tax is still an attack on Private Landlords. It would not therefore be “okay” that the Government is simply “levelling up the playing field again!
    The whole of the PRS should be united against all of the Government’s recent attacks which are mainly “Political Points Scoring” against all of the Industry.

  • Agree with Shaheen ” I think, it will be fairer system whereby both the individual and incorporated landlords are taxed in the same manner”

    Either remove the section 24 for exsisting LL (prior to announcement Oct 2015) or bring on the same for incorporated. It is only fair. The argument the goverment has is when money being taken out of the company they pay extra tax. But even then when you calculate the extra tax (when taking the money out) it does not equate to the huge tax burden placed by section 24 on indiviual LL.

  • Why does the government feel entitled to hammer individuals and small businesses that happen to rent out a few houses, yet agree lower taxes for large property companies (and sweet deals with foreign corporations)?

    Taxes will only be fair if ALL owners of residential properties – small or large businesses – are taxed the same way as other businesses and can credit expenses just like other businesses before calculating tax due.

    Foreign property owners should pay a premium as they have a currency advantage over local property buyers (the pound is cheap) and pay an extra penalty if they leave the property empty.

  • If RLA are really on the side of the landlord they should be fighting against the Section 24 NOT encouraging the Government to target landlords who incorporate.
    How is it fair to tax any group differently to the rest of the country’s businesses??
    What have landlords (excluding the Rogue landlords) ever done wrong? They are providing housing which the government can’t even get close to providing. If the government want to punish landlords for some unknown reason then they should build more houses and squeeze landlords out of the market.
    That will never happen so leave the landlords alone!!

    • Hello Marilyn,

      Thank you for your comment. Just to re-assure you, we are fighting on the side of all landlords against Section 24.

      We have not encouraged the Government to target incorporated landlords, these are not our views or questions, rather these are submitted written questions by a Shadow Labour Minister for Communities and Local Government. We don’t endorse these views, we are just highlighting the call from this Labour Minister, I’m sorry this wasn’t clear.

      We are against the government’s introduction of Section 24 and we have been lobbying the government extensively on this issue.

      We have even had a leading Tory Peer Lord Flight write an article for the RLA on this issue.

  • It is ludicrous to target incorporated landlords too. Much as I argued that private individuals should be treated the same as companies in terms of tax deductibility, it was the government lawyers themselves who strenuously argued in the recent legal case that you COULDNT tax private and incorporated the same as they were different types of legal entity. Even the judge summed up that the two are different things because of the differing regulatory regimes for tax purposes. If the government now seek to say they should be treated the same, they will be contradicting their own legal argument!

  • Interested comments. Why has the government targeted LLs? It hasn’t. It has targeted a business model different to any other business model.

    Many have bought using high leverage and interest only debt. With rates so low this is a disaster waiting to happen.
    Personally I would have removed interest only debts and reduced debt availabilty. For example, where rent is say £10k a year then amount of mortgage can be £35/£40k…like a salary multiple, instead of the current figure sat £110k.

    The government has tried a different method because it brings them in more money. So now it’s ‘feel free to borrow….but you will more pay for it.’

    If you are struggling with C24 then you were already in trouble….but you just hadn’t realised it yet.

    Wealthy landlords with cash? Not interested at these daft prices, low yields or troublesome rows of terraces in ex mining towns.

    Those big institutions who will benefit may well drive build to rent. Certainly more than the smaller amateur BTL’ers.

    BTL was a simple model which allowed a modest strategy to facilitate a reasonable wealth. But the extent some have exposed themselves has created concern and C24 is designed to stem that.

    I am as impacted to an extent but the inability of the BTL population to appreciate why this has happened is as alarming as some of the debts they hold.

    A reminder – this is a tax on debt, not rent or LLs. The reason it differs to taxation on other businesses is because the finance model being used was different.

    • But landlords provide a valuable service to the community! We’re only buying the homes that the young and feckless Xbox generation can’t be bothered to buy?

      We house the poor, and they should be damn grateful! We should be given even more tax breaks, not less!

      • S24 is probably a logical response to the current situation/housing crisis. If you accept the assertion that BTL is inflating house prices (only a fool would disagree that more “investment” = higher prices) then it follows that discouraging BTL will lower prices, especially at the typical-FTB end of things. As others have said, S24 will only affect the kind of landlords who have borrowed heavily and then gambled with that borrowed money; never a good idea, and you shouldn’t expect sympathy when it goes wrong… I think that some landlords are going to learn that particular lesson the hard way…

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