Wednesday, May 27, 2015

Shelter trying to frame a longstanding issue in a new light

Guardian: Landlords enjoy £14bn tax breaks as figures reveal buy-to-let expansion

'“To discriminate against landlords and remove these reliefs, which are offered to other businesses, would cut a swath through their profitability calculations and prompt many to sell up and invest elsewhere. That would mean even higher rents for those forced to chase after a shrinking pool of rented housing,” he warned.'
Who does this idiot think the houses would be sold to, if not the wealthiest tenants, whose removal from the pool of people looking for flats to rent would surely push demand down by as much as supply, in quantity terms, and more so in price terms, since wealthy people are prepared to spend more on rent?
I'm really sick of this nonsense going unchallenged in the press.

Posted by reticent @ 10:53 AM (3516 views)
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1. icarus said...

intro last line - to be fair the article may provide no editorial comment but it does give quotes and figures which weaken the landlords' case.

Wednesday, May 27, 2015 02:04PM Report Comment

2. mombers said...

The comments are a laugh, especially mine :-)

Wednesday, May 27, 2015 02:12PM Report Comment

3. Robbo said...

The economist magazine is now advocating that no debt interest should be tax deductible and taxes just lower to offset the cost.

Wednesday, May 27, 2015 09:38PM Report Comment

4. tenyearstogetmymoneyback said...

I was just reading through the comments and had an amusing thought.
If two people in identical houses e.g on No1 and No2 on a modern estate, rented them to each other
i.e Landlord of No1 rented and lived in No2 and Landlord of No2 rented and lived in No1
would this allow both of them to claim the tax back on their mortgages etc ?
Would there be any disadvantages such as Capital Gains Tax ?

Thursday, May 28, 2015 09:58PM Report Comment

5. reticent said...

@1 I disagree. It's the standard modern journalism technique of feigning balance by quoting the other side making a counterpoint and leaving it for the reader to discern why it's nonsense, thereby remaining impartial.

The other points raised in the article may tell a different story but they don't point out the flaws in the VI's argument. Many economically ignorant people will read it and wonder how to stop this problem since the obvious solution will push rents up according to the paper.


That's an ingenious idea. Perhaps a good way to end this subsidy would be to set up a website allowing people to meet other people who want to do that...

Thursday, May 28, 2015 10:28PM Report Comment

6. bidin'matime said...

There's a lot of misunderstanding over this point about tax relief - it's certainly true that if someone borrows to invest in (say) the stockmarket, then they can't get tax relief on the interest cost; while if they borrow to invest in a business then they can.

However, to suggest that there is tax relief being 'given away' by the government is wrong - the landlords aren't getting 'something for nothing' - if we assume that they meet the interest cost by charging rent, then that bit of the rent just comes in and goes straight out again; if the rent is more than the interest (plus other costs) then they pay tax on the surplus as profit (assuming they declare it...)

And to answer tenyearstogetmymoneyback's point, the tax effect in that scenario would be zero, because each would be paying out rent and not getting tax relief on it. The best way to imagine it is if each neighbour had an interest-only loan and charged rent equal to the interest cost plus outgoings such as repairs etc. (Note that there is no tax relief on the capital element, so if the rent does include capital, then the landlord pays tax on this as profit - so we'll leave it out for now and assume each simply aims to cover their costs).

So Neighbour A makes no profit after paying interest and outgoings, so pays no tax on his rents. And likewise Neighbour B. And instead of paying his own mortgage interest, Neighbour A is effectively paying the mortgage interest incurred by Neighbour B. And vice versa. So the effect in tax terms is no different from if they simply owned their own houses. And if their loans and interest rates are the same, then the overall cost to each of them is also unchanged by the arrangement (compared to each owning their own home). So it's a nice idea, but wouldn't help anyone.

Of course, it's true that the loss of tax relief on mortgage interest would make BTL a less attractive business - but it's never going to happen, because it's a legitimate business expense. It's like saying that bus operators shouldn't get tax relief on the interest cost of financing their bus purchases or cinemas on the cost of buying cinema seats (which they 'rent out' to the paying public). In fact what is unfair is that those who borrow (if anyone does...) to invest in stocks and shares - legitimate business activities - don't get any relief for their interest costs. After all, the government gets tax on the interest - so why shouldn't the payer (when it's a business activity - aimed at making more tax for the government) get tax relief on the interest cost? By denying the relief, the government is in fact getting two bites of the cherry...

Maybe they should treat BTL as earnings for NI etc (as 'self-employed'). However, if they do that, then landlords will also want Entrepreneurs Relief on their capital gains (10% instead of 18% or 28%). So let's not go there...

But I agree with the point that journalists need to challenge this argument about a reduction in BTL pushing up rents - it would, or course, result in more properties available to buy at more sensible prices, so fewer tenants.

Friday, May 29, 2015 02:18PM Report Comment

7. nickb said...

I think it's wrong to equate "investment" in the stock market and property with other kinds of investment where tax relief is concerned. Most trades in the stock market and houses are in pre-existing assets, so no productive activity is generated. I don't see the justification at all in these cases.

Friday, May 29, 2015 09:04PM Report Comment

8. bidin'matime said...

Well, yes and no - you could say the same about most business activities: a retailer doesn't actually 'produce' anything, but no one would dispute that his activity is a useful part of the system; marketing firms don't produce anything, but much productive activity would dry up without them. Whatever we might think about landlords, they provide a valuable service to those who could not raise a mortgage - in the same way that shop-keepers provide a service for those who can't access the internet...

The argument for stock market investment is not so clear, but many involved in raising finance would argue that the potential for public listing (and all that follows) is a major factor when raising finance for promising small companies.

Friday, May 29, 2015 10:02PM Report Comment

9. nickb said...

Well, no. The retailer is providing a genuine service, thus assisting productive activity. What comparable service is a stock market speculator providing? A landlord provides some service if you are lucky but in our market is essentially a speculator that provides the bare minimum service to comply with the law - and often not even that. The effect of this speculation using borrowed funds is to drive asset price bubbles, and the more so the more it is encouraged by tax breaks. There is no such problem with retail.

Friday, May 29, 2015 10:19PM Report Comment

10. nickb said...

Stock market investments in initial flotations are another matter, since these raise productive capital. But these are a small proportion of overall trades.

Friday, May 29, 2015 10:20PM Report Comment

11. letthemfall said...

I think the difference here is not so much one of productivity as whether the "business" is a rentier operation. Corner shops, even advertising, heaven help us, could be construed as providing a useful service. Also accommodation to let is a useful service when the supply of it meets a need for an alternative to purchase. But now the supply has far exceeded the need, and that supply restricts the alternative supply of houses to buy.

So BTL is a classic rentier operation that transfers value to BTL from others, supported by the tax system. In this case interest tax relief is not a justified relief on business expenses but state complicity in the rentier operation.

Sunday, May 31, 2015 01:18PM Report Comment

12. nickb said...

Rentier operations transfer value, as you say. As opposed to what? producing things or activities of value? It seems that this distinction boils down to "productivity" really. With assets that already exist (locations, already-issued shares) there is nothing to produce. How about this? Purchases of tins of beans facilitated by the corner store call forth more (tins of beans) to be produced. Sales of existing shares don't and renting or buying a location doesn't.

Sunday, May 31, 2015 11:25PM Report Comment

13. Bobbit said...

I'm often surprised by the naivety expressed on this site. If there was no liquidity (trading) in the stock market then few people would be interested in buying newly issued shares in the first place. If few people bought a first issue then new ventures would struggle to get investment and whole economies would stagnate and die. That's why the trading of existing shares is treated as it is.

It is equally naive to think that owning a property and subsequently renting it out should not be treated in the same way as other business assets. A service is provided, risk is taken on and people are employed in letting services, mortgage provision, maintenance, advertising and so on. To simply state that nothing new is produced is to complete misunderstand how an economy works. I understand that frustration can cause irrational thought but sometimes it's best to take a step back in the interests of clarity. Blaming landlords for the state of the market or prices is a bit like blaming a farmer for charging more for a crop when his competitors have suffered from drought, blight or war. Just like some landlords, the farmer might even have anticipated it taken a risky punt. If you don't like that either, then you might be happier living on another planet.

Monday, June 1, 2015 11:39AM Report Comment

14. enuii said...

'It is equally naive to think that owning a property and subsequently renting it out should not be treated in the same way as other business assets.'

Therefore anyone renting out a property for any purpose whatsoever should be compelled to register and run it as a legitimate business - end of.

Sunday, June 7, 2015 12:43PM Report Comment

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