Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Jonathan Wilson" at "10/07/2015 - 17:30":

Jonathan, may I take it you voted Conservative in May?
On another well known forum they canvassed members regarding their voting intentions prior to the election. The overwhelming majority were going to vote Tory and made very disparaging remarks about the opposition and their alleged anti LL policies. I wonder how many might have voted differently with hindsight of this weeks budget?

Check out my formula on Page 15 - simples!!

Or to put it simply calculate your tax excluding the finance costs then deduct 20% of your finance costs.

This works whatever your top rate of tax is and even if some rental income falls into different tax bands.

Reply to the comment left by "Barry Fitzpatrick" at "10/07/2015 - 17:38":

Barry, I think the problem is that I never understood how the tax was calculated as it stands today. I paid accountants to do that! However, I'm close to exchanging on another property so I'm now taking a very active interest in it's viability.

Reply to the comment left by "Dom Glynn" at "10/07/2015 - 16:25":

Ah, thanks Dom.

Reply to the comment left by "Dom Glynn" at "10/07/2015 - 16:50":

It does apply to all rental income, but you will only feel the effect once you slip into the higher tax brackets as you still get relief on the interest payments at 20%. However, that 20% remains static when the earnings go into the 40% tax bracket so you will only get the relief at 20% not 40%.

It's being worked on a sliding scale but once we are at full effect, the HMRC guidance says "from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction."

So no effect at basic rate as the interest is still allowed as a deduction, but it's still only given as a deduction at 20% even at the higher tax rates where you will feel the effect.

So it does look like your city accountants have interpreted it differently.

Reply to the comment left by "Simon Dewsberry" at "10/07/2015 - 11:36":

Hi Simon,

You have some insight. When you say 20% taxpayer is that from other sources I.e. employment or is it employment PLUS rental income ?
I work in the public sector so well in the 20% bracket but with my rental income ( under current rules) I would be in the 40%..

Thanks in Advance

Reply to the comment left by "Claire Oswald" at "10/07/2015 - 18:40":

In that case I sincerely hope you're right and they're wrong Claire! There's a very big difference in the bottom line. Now I'm REALLY confused. If you read the HMRC release it suggests my accountants are correct...

Reply to the comment left by "Claire Oswald" at "10/07/2015 - 18:40":

I agree with Claire - I think this is how it is

Reply to the comment left by "Dom Glynn" at "10/07/2015 - 18:57":

I don't know if this link will work http://m.accountingweb.co.uk/anyanswers/question/summer-2015-budget-interest-relief-restrictions-btl-properties

Basically someone has a response from HMRC where they asked whether in the case of £250k income, £150k interest costs £100k other expenses where currently nil tax would be paid what the effect would now be.

The answer from HMRC is that tax now payable would be £21,400!

That is worked out by calculating the tax as normal in the different tax bands on the £150k 'profit' which equates to £51,400, then deducting from THAT TAX BILL 20% of the interest costs which equates to £30k This leaves £21,400 to pay, but note this is to be paid from nil profit and essentially nil cashflow in this case as all incomings have been paid back out.

Does that make sense?

Reply to the comment left by "Dom Glynn" at "10/07/2015 - 18:57":

My reply seems to have disappeared.

I have seen a response from HMRC to a request for info off someone asking whether in this case where in the past no tax was paid, what may now be payable:

Income £250k
Interest £150k
Expenses £100k.

HMRC's reply was that £21,400 tax would be payable:

Income less Expenses = £150k 'profit'

Tax is then calculated on that £43k @ 20% + £107k @ 40% = £51,400

Then the interest is bought in to relieve that tax cost at 20% so £150k x 20% = £30k.

Which leaves £21,400 to pay. From possibly no profit or cashflow!

Does that make sense?