Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Claire Oswald" at "11/07/2015 - 09:15":

Once again, please forgive me if I'm being stupid!
If I had lengthy void period, with interest payments still be made but no rent coming in, would I be taxed on the interest payments anyway?

I'm just joining this thread and, from reading the posts, I'm not convinced there is enough information anywhere for me to calculate the impact of the new measures. I understand the basics but my problem is how is it determined whether you are in the 20% or 40% bracket. For instance, under the old rules, the following scenario would put someone in the 20% bracket:

'Day job'. 31000
Income from rental properties 44000
Mortgage interest 27000
Other expenses 6000

Therefore net profit 11000 from rental added to 31000 from day job is 42000 still within the 20% bracket.

Is it at that point it is determined whether you are a 20% candidate or as follows:

'Day job' 31000
Income from rental 44000
Other expenses 6000

Therefore net profit 38000 added to 31000 from 'day job' totals 69000 which takes you in to the 40% bracket incurring additional tax, after the 20% relief on mortgage interest of circa 5000 per annum in this particular scenario.

Should the latter be the case, such is life, it pays to keep your geering ratio reasonably low to ensure sustainability when interest rates rise. Once the initial shock settles investors will find their equilibrium to make their business work albeit not quite as profitable as before.

Still niggling though given the hours I know I work to maintain my portfolio on top of my 9-5 but it won't deter me. I remember interest rates at 13%, doesn't get more challenging than that!

Reply to the comment left by "Dom Glynn" at "11/07/2015 - 09:49":

If your overall income is above the 20% rate (£43k from 2016 but proposed to be as high as £50k by 2020) then you will only be able to offset 20% of the interest cost against any tax liability.

You're not really being 'taxed' on the interest but that's probably semantics.

Reply to the comment left by "shakeel ahmad" at "11/07/2015 - 09:32":

I have no kids so not bothered too much about inheritance tax. And don't a lot of mortgages get paid off through insurance on death so my asset level would be the same whether or not I had debt.

I don't particularly want debt against the property, I'm not planning on getting hundreds of them so if I can do it the simplest way possible I will. I can't see the point of paying out to then claim against tax - surely that puts you in the same position you started with, but if it was interest only, with a debt burden to pay off at maturity?

My main income isn't BTL, like a lot of landlords my first was 'accidental' and due to good financial planning (and no kids :-)) I've been able to purchase further.

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

Claire, so going back to rather simplistic example.
If I have an empty property but pay £5k interest in a tax year, and I'm a basic rate tax payer (forget personal allowances for now), would I be taxed on 80% of those interest payments? By my calculations, that would produce a liability of £1k on top of the £5k loss for that year. Is that correct?

Reply to the comment left by "Michelle O'Connor" at "11/07/2015 - 10:33":

This was also the point I was making and still seems unclear, does the revised method of calculation result in 20% tax payers currently suddenly being deemed 40%. ( as per this example)

Due to the fact that interest costs are not deductible from rental income but instead will have tax relief at 20% applied.

The example worked through on this site is the clearest I have seen. I think even I understand it now!
http://www.mortgagesforbusiness.co.uk/news-insight/2015/july/how-the-restriction-of-relief-on-btl-mortgage-interest-will-affect-landlords/

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

This is where I apologise for being stupid. I do have kids so put my lack of little grey cells down to the sleepless nights over the years! At what point do they determine your overall income, before or after mortgage interest? In reality, for those of us who have encumbered properties, the overall income is net of these costs but I'm not sure that is how the new regime will work. It would be helpful if we had some detailed clarification from the powers to be to avoid us all chasing our tail.

It does not make financial sense to have your buy to let mortgages/property covered by life insurance payment. If you do.

a) You pay premium thus affecvting your cash flow.
b) You are not allowed to set off the mortgage payments against your income as the the insurance premium is on your life & not the property.
c) you will now pay higher ITP tax.
d) Once you have paid the mortgage amount outstanding on death. Your property will be unencumbered as as such attract IHT on the value of estate.

One could argue that one does not care as one is dead. My view is I cannot take it with with & therefore I will make sure that I do not leave it for the tax man or leave as little as possible.

Reply to the comment left by "James Leavesden" at "11/07/2015 - 11:05":

Thank you. That's exactly what was needed. Shouldn't be any confusion now, just lots of number crunching!