IFA boss: Government has hammered the middle classes

Allan Reece

November 21, 2016

stamp duty

Ahead of Wednesday’s Autumn Statement Allan Reece, chief executive of Romford IFA firm Allan Reece Associates, speaks out against changes to buy-to-let and business rates

The continued attack on middle-class members of the public by a Conservative government defies belief.

The Tories in the past have encouraged the population to be entrepreneurial in order to create wealth so that the people concerned and their families are not a burden on the state.

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Workplace pensions have been encouraged by the government yet individuals wishing to save for retirement have been systematically discouraged to provide for their retirement by the removal of incentives to save for pensions – the poor returns on savings and lately the unprecedented squeeze on buy-to-let investors.

The government is happy to encourage large companies to invest in buy-to-let properties but not the hardworking middle-class engine room of the nation.

The surcharge of 3% on buy-to-let property purchases is wholly unjustified and was apparently designed to create more properties for sale in the market and increase the stamp duty revenue.

As often happens, when a government tries to manipulate the market the opposite is achieved to the original intention, as evidenced by the fact that stamp duty receipts have halved since the introduction of the surcharge and fewer properties are now available to rent, which has the inevitable effect of increasing rents.

In addition, new regulations have been introduced relating to affordability for buy-to-let investors which cannot be justified in any way whatsoever.

All our buy-to-let investors are advised to maintain an account representing at least three months’ rental payments so that the owners are in a position to make monthly payments should they encounter void periods.

Most of our buy-to-let investors, in fact, maintain a fund of at least six months’ rental payments in reserve.

If the Governor of the Bank of England is so concerned about affordability why doesn’t he simply impose a condition whereby buy-to-let investors maintain an account with at least 3 months’ rental payments to cover any shortfall?

Interestingly, as a consequence of the ill-conceived change of rules and lack of availability of rental properties, rented properties are not vacant for very long in this market.

The government should be encouraging the population to conserve wealth, not block any opportunity it can think of to stop hardworking law-abiding citizens improve their financial situation.

The Governor of the Bank of England has repeatedly made incorrect calls during his tenure at the Bank and his latest attack on the middle-classes confirms his lack of understanding of the mortgage market.

By insisting that borrowers must make at least 25% profit from their investment, the inevitable consequence will be increased rents.

What justification is there to base affordability on 5.5% when the current Bank of England Base Rate is 0.25% when the average fixed rate for a buy-to-let mortgage is around 3.5%? A fixed rate protects buy-to-let investors from any interest rate fluctuation.

In addition, the previous Chancellor introduced a further change in respect of tax relief on mortgage interest for buy-to-let properties which again can only result in increased rents.

As buy-to-let investors are being discouraged from further investment the supply of rental properties will fall which will also increase rents.

Business rates

The government has proposed a hike in business rates next spring that will harm thousands of businesses across the country.

As with buy-to-let mortgages the government should be encouraging small businesses, not making life even more difficult than it is now to survive.

Business rates are levied on shops, offices and factories on the basis of property values without taking into account the profitability of the business.

When the economy slowed down business rates continued to rise and it wasn’t taken into account that online competitors do not pay anywhere near the same amount in business rates or any business rates at all depending on the type of business.

Also, the system treats the landlords unfairly in that while a building is occupied the tenant pays the business rates but when it is empty the burden falls on the owner.

The irony is that businesses are not allowed a vote in the area in which they are based.

I hope my comments are helpful and I truly hope that the Chancellor makes common-sense and realistic announcements in his Autumn Statement.

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  • Ros

    Thanks, Allan. That was a very well-written and balanced article. I would add that the so-called ‘restriction on tax relief’ for BTL landlords is nothing of the sort as we don’t get ‘relief.’ That is sophistry on the part of the Government as they know that it is really the disallowing of legitimate finance costs. They want to tax the profit from our businesses, but then disallow the costs of creating that taxable profits. They then compare us to home-owners and say they are levelling the playing field, but we have to pay tax on rent and capital gains tax, which owner-occupiers don’t, The whole thing is dishonest and a farce.

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