Deputy will challenge mortgage relief plans

AN AMENDMENT to defeat Treasury and Resources’ controversial suggestion to phase out mortgage interest tax relief will go before the States, Deputy Matt Fallaize has confirmed.

AN AMENDMENT to defeat Treasury and Resources’ controversial suggestion to phase out mortgage interest tax relief will go before the States, Deputy Matt Fallaize has confirmed.

The Vale politician, pictured, will challenge the department’s 2013 Budget when it is debated at the next month’s States meeting.

Many islanders have reacted angrily to Treasury’s plans and have signed up to Facebook groups and an online petition to make their worries known.

Some deputies have also raised concerns about the effect on homeowners of phasing out the tax relief.

But Treasury members insisted  over the weekend that firm proposals to phase out the relief would be brought to the States only after a review of taxes.

Comments for: "Deputy will challenge mortgage relief plans"

Dani

Petition to sign if your against the mortgage relief removal:

http://www.ipetitions.com/petition/say-no-to-guernsey-mir-reductions/

Mortgaged

petition to support the removal of mortgage tax relief www.SpendTodayPanicTomorrow.com

Puzzled...

Well done Matt, I think you will have every chance of kicking this one into the long grass. But I have to ask, why did the good Minister confirm to the GEP that when this news first broke that " relief would be phased out over seven years" ? Does he not know what his Board thinks or is he doing his own thing ? Deputy Dorey on the phone-in was singing from a different hymn sheet when he suggested it was still just a possibility. Let's hear the true T. & R. position on this important and very worrying matter.

Mortgaged

Let's kick this into the long grass and leave our children with the problem of Guernsey having poor infrastructure, lots of debt, no helthcare, no pension AND NO FUTURE

Billythefish

Where to start.... How about with what T&R are saying... Mortgaged, this is not about insuring we have less debt, decent infrasstructure etc etc - this is NOT to raise revenue, just redistribute.

Obviously that's horse poo, but still...

And bearing in mind we take £360m odd in tax, if not getting an extra £8m means the armageddon scenario you paint, then something's badly wrong!!!

And do you not think with the wealth of this island that there are better "equity" measures that could be taken?!?!

Companies perhaps, high earner rate? Seriously, a bit more imagination please.... from T&R as well as you!

Mortgaged

Hold on a minute, this will take 7 years to take its full effect, that sounds like a lot of time to downsize!

Ray

Perhaps T & R need to spend a little more on consultants to learn how to get their real message across to the public?

Mortgaged

Matt Fallaize - Please stop interfering for the benefit of a small percentage of the islanders. Of course the removal of tax relief will have an impact but in reality it will simply bring down house prices proportionally. Nobody actually loses any money if the whole market moves unless they want to down size. The whole island should not provide a subsidy to a minority

Minority?

This isn't correct, firstly it is not a small proportion of islanders, it will affect everyone who either owns or rents. How do people not lose money if a) they pay £100s extra in taxes every month because they are a homeowner or b) their rents go up because demand for rental properties go up because people cannot afford to purchase? It is only those which have already paid off their mortgages or live in states subsidised housing which are not hit and I would argue that this is the minority.

Portlandgrey

Gavin, I suggest that you reread your election Manifesto, this bit in particular:

"I will oppose the introduction of new taxes (direct or indirect) until we are satisfied that we have - where possible - eradicated waste and inefficiency in public spending."

You were elected on the back of your pre election statements, adding further financial burden to working familes is unacceptable.

Trim the fat from the states first, starting with the unsustainable pension that the whole island is carrying.

James

I suspect that morgage interest tax relief contributes significantly to the high price of housing in Guernsey. Perhaps phasing it out will stabilise house prices to some degree at the low to medium end and thus mitigate the impact on house buyers in the medium term.

Billythefish

Dude - really?? Signficant?! Minor perhaps. And phasing it out, IF it results in stabilising (ie reducing) house prices, then there will be a lot of negative equity - and THAT'S a bad downward spiral which apart from the obvious problems for the individuals will hit the tax take in the form of stamp duty big time.

THere are far more far better ways to increase revenue.

AD Locke

If you are a renter then please read carefully because this will affect you as well.

Matt You have my support 100%

This removal of mortgage relief will not really affect me now but without it I would never of got on the property ladder.

Having a home also allowed me to borrow to build my business and employ local people in turn who pay their stamps and taxes.

Without the relief there would have been no home no business and no jobs.

It is not fair on my children or the many people making the massive commitment to by a home to have this removed, plus interest rates that are low now could easily go up meaning a big increase in mortgage payments. This along with the cost of removing mortgage relief will mean many losing their homes.

When they lose their homes the have to rent meaning the cost of rentals going up due to more demand, so even those that think they have no interest in this because they rent most certainly do!

Billythefish

And also, for those who rent, but want to get on the ladder, the knowledge that the relief is there makes the calculations a bit more paletable. Take it away and ownership becomes that little bit more unreachable.

Which means more people "throwing money away" renting and lining landlords' pockets to the extent that when they are at retirement age, and would have otherwise owned a property, they will be staring down the barrel of having to come up with rent money from whatever pension they might have.

If you believe those that say there are too few people with private pensions and also that state pension provision is likely to reduce over time, then this is a very, VERY dangerous step!!!!!!

Toto

@Portlandgrey please realise Gavin isn't introducing a new tax. This seems to be a very common misconception. You're only seeking to make certain that your comments are ignored. He's removing tax relief, you're already taxed on it, therefore he's not introducing anything new. It's not going to be a very strong argument if everyone keeps bantering about the introduction of a tax when it's not.

They are the same

It is only the practical effect that matters.

Will an affected person's tax bill stay the same, go down, or go up as a result of this measure?

Answer - it will go up, possibly by a large amount.

A government measure that causes your tax bill to go up a lot is for all practical purposes a tax increase or a new tax for you.

Even if from a legal perspective it is the abolition of something that relieves your tax liability.

The hit on your bank account feels no different whichever form of words this tax raising measure is dressed up in!

Toto

"that causes your tax bill to go up a lot"

So far, there hasn't been any evidence to indicate this. Over a few years, along with starting late, and reducing the relief by £50,000p.a. means the impact it will have on your household, even if you're smack bang on the mark for the relief being withdrawn, will still have a small impact on your household. So no, your tax bill will not go up "a lot", especially considering the many years the relief reduction will span offsetting that with regular inflation.

they are the same

A lot or a little, the point is if tax bill goes up, feels like a tax increase / new tax and that's what it will look like when that money has gone from your bank account to the tax man / woman

Second, if in 8 years from now when the full removal is proposed to have occurred, and if you have £300k outstanding on your loan at that time, with interest at 5% /annum, you will pay £3000 per year more tax from this proposal every year for the remainder of your mortgage (on a slightly decreasing basis as your balance reduces).

Unlike in the past, not many of us think that the loans will be inflated away such that the £3000 in 8 years will feel like a couple of hundred pounds now.

For some people, maybe £3000 per year in 8 years can be shrugged off - but those people are likely the exception.

So this is for many, a very sizeable tax bill increase coming down the track and you cannot just will it away - it drops out of the maths!

Billythefish

It's not a strong argument - it's SPIN plain and simple.

Increasing tax take is new tax money. It might not be "A" new tax. But it is new tax revenue and new tax burden.

Otto

Sorry Toto, no one is buying that! Removal of Tax Relief is practically a new tax. We've gone from not paying tax on something to paying tax on something. The result is exactly the same as introducing a new tax and that is what people are angry about.

Myself and my family have absolutely no chance in Guernsey if this goes through will certainly have to look at life elsewhere.

Lisa Sharp

I would really like Mr G st P to explain how it is currently costing the taxpayeers £8m. I don't believe this is the case. You may not be getting that amount of money from hard working islanders who have managed their finances and workloads to be able to buy a house, but I don't for one second believe that it costs the states £8m to have the mortgage relief in place. I think you need to be more careful with your use of the english language. In additon, removing this relief will mean that more people have to then rely on the housing benefits that are already in limited supply. How is this in anyway beneficial to the island as a whole and more specifically the tax payers. It will also stop esxisting home owners from moving or attempting to upgrade their properties. House prices will drop, estate agents will go out of business, as will some building firms etc. The knock on effect to unemployment and the states benefits system could be catestrophic in the long term. Have you really thought this through. Wake up Mr G St P before you destroy island life altogether.

Jamie

Actually the £8mil is quite believable:

Mortgage of £300k ay 3.5% is about £10k interest per year. Relief on £10k of interest = £2,000 that would have been otherwise collected.

4,000 properties with mortgages and owners claiming the above average level of relief (£2,000 x 4,000) = £8mil

Jamie

I think I should add that this relief also adds a large exposure for 'Guernsey plc' to interest rates.

If interest rates double (quite concievable) then so does the level of relief. I'm guessing but i think G st P is pre-empting this scenario as well.

Billythefish

You could be right Jamie, but then everyone would be even more completely banjaxed than they might be now!!!

Either way it would be horrendous

Billythefish

The point Lisa is making is it isn't a COST!!!! That's the same as saying that having a tax rate of 20% instead of 30% is COSTING the island x million.

It would be a cost if we give a tax up - like we did with corporation tax - why on earth we didn't come up with a solution to the lost tax revenue at the time I don't know....

But the relief is NOT costing anything. It's a concession, if you want to call it something.

jamie

Did i say it was a COST ?

Why is MITR in the budget anyway

Priority 1 - There are very tough economic conditions in Europe and Globally and locally too. Guernsey Government must steer our economy through this and seek to maintain sustainable growth for the island's benefit into the future.

Priority 2 - The government has a structural deficit which must be eradicated.

These are both massively important issues that we as a small island have to confront with our limited resources.

T&R's stated aim of the MITR abolition is REDISTRIBUTION (and on grounds of some fairness principle that turns out to be more complicated when examined closely).

Therefore this T&R initiative will NOT reduce the deficit. And on the economy, there is every chance that this tax change will DAMAGE the economy.

Why on earth is time being spent on this tax issue? - time spent (wasted?) on this by our politicians and civil servants cannot be spent on the far more pressing issues of the day, 2 of which are listed above (but there are others).

Surely this MITR issue is well down the priority list?

If T&R spend too long looking the wrong way, god help us.

It might be a good political spat to see this one play out, but surely we should all be focusing on the real issues that affect us (now is not a good time to redistribute the deck chairs is it?)

Please could T&R focus on the issues that matter for our economy first as that is what drives everything else whether we like it or not.

And second to that, why not bear down on the deficit by sensible well thought through efficiency iniatives (of which there are many viable ones and a few arguably daft ones being pursued, but that is another story).

There is much good work to be done, but spending valuable political, parliamentary and civil service time on this issue seems almost indefensible in the current circumstances.

Billythefish

I know it's not necessarily JUST the "rent" but "TAX" that's too high in Guernsey, but this whole thing reminds me of this....

http://www.youtube.com/watch?v=Gg5SwyTvAHw

Reality Check

This scares me to death!

This will basically KILL people who are on fixed mortgages like me. (10 yr fixed)

I don't know who else has done the sums, but if as me you have tried to be sensible and take out a fixed rate loan (just before they dropped as I did) This will bankrupt you.

It would cost you £82,000 over the 8 year period.

If you have a £350k mortgage at a fixed rate of £5.85%

2013 $0 extra to find/year

2014 $0 extra to find/year

2015 $2950 extra to find/year

2016 £5850 extra to find/year

2017 £8775 extra to find/year

2018 £11,700 extra to find /year

2019 £14,625 extra to find per year

2012 £17,550 extra to pay per year

2021 £20,475 extra to pay per year

Total of £81,900 extra to pay just over that short period, I don't know about you, but that would force me to leave my Island of Birth and have to move to the UK.

Reality Check

Sorry, that is obviously wrong

It should say you will lose £81,900 in tax RELIEF, which equates to £16,380 in TAX.

jamie

Your sums are wrong !!

.... which should come as a relief (no pun intended).

Interest per annum is £20,475 (350k x 5.85%). At it's maximum (in 2021), your loss of tax relief would be 20% of this figure ( £4,095 )

Reality Check

This will badly affect people on high fixed rates.

If you have a £400,000 on 6 % for instance, this will cost you an EXTRA £21,600 in TAX over the phase in period (7 years), and each year after you will have to find an extra £5000 to pay in tax.

Sam

Reality Check,

Your figures are way up the creek, you obviously failed Maths and your figures only serve to totally muddy the waters.

Phil

They look pretty accurate to me, care to explain why they aren't?

Alex M

The sad fact is that the States as a body STILL haven't proved that they can make the cuts in their spending Gavin promised in his manifesto that he would wish to see. In fact, I have seen very little evidence that any States department is even trying to make the cuts that are appropriate and necessary. There’s a lot of talk about reducing waste, but when it comes down to it, the States have gotten so used to the good times that they simply appear unable and unwilling to trim the proverbial fat.

West

Is it the States unwilling or the civil service?

Puzzled...

If one ignores the various maths errors that have tended to confuse matters we still appear to have the Minister and his Board going in different directions. The Boss saying the tax relief will be wound down over seven years and his team saying "maybe". It would be nice to have an official clarifying statement issued to the media by T. & R. and not just a few lines from the Boss directed to the denizens of this forum. Compared to the clatter of keyboards from thousands of worried property owners around the Island the silence from T.& R. at the moment is rather deafening and does nothing to ease the concerns of those property owners.

Neil

If you are a house owner with a couple of kids in Guernsey, say with a 400k mortgage the state gives you about £3000 a year. £1000 for the kids and £2000 for the mortgage relief. Nice eh? And it gets better, house prices are rising at around 4% per annum so when you come to sell your property the state allows you to take all of the profit out of the asset untaxed. I can't think of a better place to live be honest with you.

Treaury might have got this the wrong way round though. They would have been better starting taking the relief away at those on lwoer mortgages and working up, rather than working down. It's reasonably obviosu it's going to hit those with larger mortgages quite substantially.

If you have a 50k, 100k and 150k mortgage, the chances are you are in a more comfortable position. Children older, eaten substantially into your mortgage principal and likely to be slightly older with a higher income and probably with more disposable.

If we are going to lose mortgage relief over a longer period of time, Treasury need to reasses which end of the stick they are looking at. Starting at 400k for those who may have just bought that house seems a bit harsh to me.

50k, 100k, 150k....that way.

a voter

A very well made point which I have not seen made elsewhere and had not occurred to me.

You could be absolutely right - perversely more people with the lower mortgages may have more disposable income for the reasons you give.

This just underlines how complex and counter-intuitive some of the underlying details are and why this whole area needs a good solid piece of work doing on it before T&R / all Deputies can be in a position to be able to reach a conclusion (and certainly before annnouncing a (presumptive) decision!)