New landlord tax rules for new debt only

by Mark Alexander - Founder of Property118

10:54 AM, 23rd July 2015, About 10 years ago 52

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Those of us who are lobbying for an amendment to the budget need to have a very clear message.

I propose that message is “new tax rules for new debt only”

Let us be absolutely clear; Government and the Bank of England have recognised a need to reduce growth in the buy-to-let market. It is highly unlikely they would knowingly risk the decimation of an industry and all of the knock on consequences. At the moment they are swinging a sledge hammer at a nut. The consequences of the sledge hammer striking that nut is obliteration which serves no purpose. This needs to be made clear.

To help you to comprehend the consequences of the Budget proposals being implemented as proposed you need to have a clear understanding of the impact on your personal finances.

Will your tax be more than your profit?

Before the Summer 2015 Budget it was unthinkable that a UK Government could charge anybody more tax than they are making in profit. However, that is entirely possible under the Budget proposals. Indeed, in the case issued by HMRC as an example, the extra tax payable by that landlord will be equal to all of his rental profit, plus 50%.

But how will the Summer Budget affect your personal finances? If the total of your gross income and your BTL finance costs is more than £43,000 then you will pay more tax. Perhaps more to the point, what are you going to do about it?

A think tank of numerically talented Property118 members has pored over a spreadsheet created by Alex Caravello of Milton Keynes Landlords Association and given the numbers the thumbs up. The spreadsheet allows you to calculate the REAL effects of the Tax Levy for your own circumstances. Let’s be clear, this is a tax levy despite the Government spin doctors calling it an amendment to “tax relief”. Some have gone as far as to call it a ‘confiscation of assets proposal’

To download the spreadsheet, in order to see for yourself how you will be personally affected, please CLICK HERE.

We urge you to then to make an appointment with your local MP to show him/her your calculations. If you are not confident with spreadsheets or your tax returns please ask your accountant to complete it for you. If you have other professional advisers such as a mortgage broker, a solicitor or a letting agent then show the results to them too. Perhaps even show your tenants and explain that all landlords are in a similar position and will need to increase rents to pay these tax levies if they are implemented. The more people we can disturb the better.

If we are to stand any chance of getting these Budget proposals amended there needs to be a massive public outcry.

If you are a talented letter writer please consider further lobbying, e.g. to the Bank of England (head office and local representatives), George Osborne and even the Prime Minister. Some great examples of letters already sent can be found HERE.

It will not only be landlords who are affected if these proposals proceed as planned. If landlords face bankruptcy and there is a fire sale of tenanted property resulting in property prices crashing more homeowners could be trapped in negative equity, particularly those first time buyers who have managed to get onto the housing ladder in recent years. The tenants of the sold or repossessed properties would be evicted, and rents for the remaining properties would rise. I doubt any sane Government would want that.

Economics and common sense will prevail …. eventually …. but it is imperative that every reader of this article takes action now and completes the suggested tasks above if we are to stand any chance of common sense prevailing before it is too late.

The key message we must get across to the influencers of this decision (Government and the Bank of England) is as follows ….

“NEW TAX RULES FOR NEW DEBT ONLY”

Please share this article via Social Media and encourage all landlords you know to read it and to download the spreadsheet.

Just in case you haven’t done so already, please CLICK HERE to download the spreadsheet and then re-read this article to remind yourself of what to do next.

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Comments

Imogen East

11:52 AM, 23rd July 2015, About 10 years ago

The link isn't working for me unfortunately

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Lee Gough

11:57 AM, 23rd July 2015, About 10 years ago

I have to disagree it should not be allowed full stop on new or existing debt. If this is allowed I can see it get rolled out to all tax bands.
A simpler way to slow the market down would be to make all new loans have to stack up on a repayment basis and not to allow equity release.

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Michael Fickling

12:04 PM, 23rd July 2015, About 10 years ago

Mark your suggestion on it being non retrospective is spot on.

I would add though that the possible "turnover tax " effect for many of us who break even or make a small annual loss is also a very major shift in general tax principles and should scare the hell out of all business groups who use finance.Perhaps we can flag this up to other business groups/associations...There is some treasury stuff
also available that may actually assist see below,,,

Check out the Treasury Committee oral evidencer enquires into the budget ..UK parliament website.15th July questioningof Prof. Booth and others.QUOTE in answer to Question12..."...limiting tax relief to some extent on one particular type of business does not make any sense at all to me."......and a little further on q13..answer from Jonathon Portes (Director Nat. Institute of Economic research AND SOCIAL RESEARCH),,,.....Quote..." I agree with Philip, you do not solve the serious structural problem of the lack of supply in the UK housing market by messing around with demand mostly in ways that will tend to increase demand"...

and again whilst answering q 10..Prof. Booth...quote "This was not an economists budget,I can tell you"............So its not just landlords that see no logic in all this.

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Barry Fitzpatrick

12:21 PM, 23rd July 2015, About 10 years ago

I would like to qualify "new debt" as being new property purchases. Thereby allowing re-financing of properties to release equity.

To keep the message simple therefore "New tax rules for new property purchases".

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Stewart

12:29 PM, 23rd July 2015, About 10 years ago

If anyone needs the name, address and email address of their local Tory there is a filterable list of MPs at the house of Commons website. I filtered by Conservative Party and the link is here –

http://www.parliament.uk/mps-lords-and-offices/mps/?sort=3&type=4

This may help you contact your local MP

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Andy Bell

13:54 PM, 23rd July 2015, About 10 years ago

The slogan sounds good (if we are accepting the governments wish to kill the rise of buy to let) as long as "new debt" is a meant as additional debt and not changing the product or provider of existing debt.

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RichDad

14:32 PM, 23rd July 2015, About 10 years ago

With regards to the stated aim of making things easier for first time buyers:

Forcing severely higher costs onto business owners like this will inevitably cause some property businesses to go under, and this will mean eviction of thousands of innocent tenants and those properties are sold off or repossessed.

This may indeed create opportunities for bargain properties, but they will more likely be snatched up by wealthier cash buyers rather than first time buyers, who will still be kept out of the market.

Will it create new homes? No! So all this distress will do is destroyed family businesses, ruin pension plans, and cause the change of ownership and occupancy of the same number of dwellings.

Picking this one industry (private rented sector) to change the taxation rules of financing is a distortion and doomed to fail, but causing untold anguish and distress, homelessness and misery in the meantime.

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RichDad

14:44 PM, 23rd July 2015, About 10 years ago

Wait, it gets worse … much worse, the higher your LTV gearing ratio …

Mark Carney (head of the Bank of England) has already started hinting at a base rate rise in the next 12 months. If you took the current average interest rate of your portfolio to be say 2.5%, then even a rise of 0.5% of the base rate will case our interest costs to jump by one fifth (20%).

But you would only get relief on 20% of that rise, i.e. you have to swallow 80% of the 20% rise, which means that even 0.5% on the base rate would raise your unrelieved interest costs by 16% in this example. Less income plus higher taxes.

Gosh, does that increased net income now push you into the next 40/45% tax band too? Oh dear!

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Appalled Landlord

15:55 PM, 23rd July 2015, About 10 years ago

Reply to the comment left by "Richard Peeters" at "23/07/2015 - 14:44":

Hi Richard

The change does not mean that we will pay tax on 80% of the interest.

The interest will not deducted from the rents received, so the rental profit will appear to be that much higher, by 100% of the interest. This higher profit is added to all your other income, then the tax is calculated by proceeding through the various tax bands.

Then finally 20% of the interest is given as a relief and deducted from the tax that was calculated, and you then owe HMRC the remainder.

So tax is calculated on the amount of the interest at up to 40% (or 45% if your total income exceeds £150,000), then 20% of the interest is deducted. The effect is that you pay up to 25% of the interest amount in extra tax.

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Mark Alexander - Founder of Property118

16:13 PM, 23rd July 2015, About 10 years ago

Reply to the comment left by "Appalled Landlord" at "23/07/2015 - 15:55":

Good explanation, I concur
.

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New landlord tax rules for new debt only