Summer Budget 2015 – Landlords Reactions

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This legislation is a disaster for professional landlords with large portfolios. The reason is because it is retrospective i.e. it affects properties which may have been bought years ago not just properties bought in the future.

Obviously if people had known this was coming, it would have affected their decision making. This doesn't just apply to landlords but to mortgage lenders and tenants as well.

It will inevitably lead to rent increases and landlords selling stock as some properties will simply be unviable both for the landlord and the lender.

Tenants will be faced with unsustainable rent increases and for low paid workers, their new National Living Wage will quickly disappear.

Property rental is a business and should be treated as such. Landlords should be able to offset legitimate business expenses such as interest against their profits based on the rate of tax they pay.

This has not been thought through and the consequences are dire for the economy, professional landlords, lenders and tenants.

Mr Osborne hopes this will get him into Number 10 by tinkering with the property market to appease the FTB's. However, landlords own over 20% of the housing stock in this country and as a group they have significant influence on the market and votes for MP's.

There is another problem with owning buy to let property in the company.

Yes you might save some tax when you don't need the money but you will pay more tax if/when you decide to take the profits out of the company and spend it on something personal such as a car or a holiday because you will need to pay yourself a salary or a bonus or a dividend, all of which are taxable.

Furthermore, a company doesn't have an annual CGT allowance.
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Reply to the comment left by "Neil Patterson" at "09/07/2015 - 13:41":

Hi Neil, just taking an £11k salary for me. It's tax free. And same for my wife. And 2 kids still at home. That's £44k tax free for our household. 😉

Reply to the comment left by "Roanch 21" at "09/07/2015 - 14:28":

I'm sorry but that sounds like a contrivance to me, unless your family members are doing a genuine £11k of work each. I wonder if HMRC permit such contrivances.

I think everyone should write to their local MP, especially if they are Conservative, as well as George Osbourne (although I doubt GO will ever actually see any email you send to him).

Reply to the comment left by "Roanch 21" at "09/07/2015 - 14:28":

Only if you and your wife have no other taxable income, and if that's the case why would you need the Ltd. company?

If you could justify the company paying the kids £11k, and they are not earning taxable income elsewhere, why not use the same justification for you and your wife to pay them out of rental profits?

Without a Ltd. company you would avoid extra accountancy fees, hold onto your annual CGT allowances and probably get better deals from lenders too.

Posted by Mark Alexander using Neil's login.
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Reply to the comment left by "Mervin SX" at "09/07/2015 - 00:30":

Hi Mervin

"40% or 45% tax payer (from income other than your ‘property income’)"

I had thought the determinant of tax rate was all income and not income less rental income. Where did you source this information, so I may read up for myself?

Thanks

Jay

I am proposing to send the following message to my local MP:

Please suggest and amendments/comments/additions before I send it.

Whilst I broadly welcome the announcements made in yesterday Budget, I do believe that the changes proposed to the tax relief on Buy-To-Let finance costs are unjust, and out-of-line with the general principles that have applied to the taxation of businesses (and YES Buy-To-Let is a business) for centuries. Namely, businesses are taxed on the profit that they make, that is the amount left from income after legitimate business expenses have been deducted (which includes interest paid on loans).

These profits are already taxed at escalating rates of tax dependent upon the total income of the Landlord concerned. I appreciate that this change only affects Landlords who pay higher rates of tax or for whom the additional rental income takes them into higher rate tax bands, making a punitive marginal tax rate of 60% or even 65% for additional rate tax-payers.

This is being done falsely in the name of “fairness” with residential home purchasers. But residential home buyers already enjoy better mortgage rates and if they are buying their principle private residence are exempt of paying Capital Gains Tax upon the sale of the property. Is it fair that such Landlords are treated from a taxation perspective less favourably than larger corporate Landlords who operate through a limited company structure? The private rented sector is already unfairly treated by the tax system – it cannot register for Vat for instance.

This change will cause a number of Landlords properties to lose money, especially if dependent upon the Wear & Tear Allowance; and probably within the medium term interest rate rises.

This will make Landlords so affected either:
1. Sell up – so reducing the number of properties available for rent. This reduction in supply will inevitably push up rents.
2. Increase rents – subject to local market conditions, Landlords may try to increase rents. This may be difficult as they will be competing with other Landlords who are no so affected in that area.
3. Move properties into a limited company and avoid the tax hike altogether.

This measure will overall be to the disadvantage of Tenants.

I therefore urge you, as my representative in Parliament, to request that the Chancellor re-thinks this particular budget proposal with a view to dropping it altogether.

I've just read on Investors Chronicle, that the reduction in tax relief only relates to the BTL part of your income...i.e. not including any other 'earned/investment' income.

But I still can't do the maths...I've used all the different ideas on this forum and compared it to where I am now (under the 40% tax.....so the new rules shouldn't make any difference to me at the mo) and none of them work out to the same figure I am paying now..

And as to buying those 2 new BTLs I was planning on...Huh!

Sorry, I can't get back to the IC article to post a link (my free views have been used up!)

Lisa