Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "James Leavesden" at "12/07/2015 - 00:32":

James,

Can you give us an example, how should this work out?

Reply to the comment left by "Vero streetflat" at "11/07/2015 - 17:56":

Are you saying that your property is owned by your company? If so, can you explain why you think that all your mortgage interest cost should be tax deductible, but mine should not?

Reply to the comment left by "Gary Mason" at "12/07/2015 - 00:36":

Yes I provided a link from Mortgages for Bussiness a couple of pages back with worked examples for a number of circumstance.

I can't seem to cut and paste the link on my iPad at the moment.

Here it is 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 "James Leavesden" at "12/07/2015 - 00:52":

James,

The example shows exactly, same as my calculation with the exception of rental profits as well as interest is added together (in one go) which reaches same conclusion.

The bottom line is that, you have to add all interest to your income and then once you reach £43k then anything over and above this figure is taxed at 40%. Then from total interest you reclaim 20%.

Here's again:

Rental profit £36000 (ignore for this example you have any other employment).

Finance Interest £64000, therefore your total income to calculate tax liability is £100k.

First £43k taxed at 20% therefore total tax paid = £8600.

Next £57k are taxed @ 40% = £22800.

Your total tax when added lower & higher rate = £31400.

You then reclaim 20% tax relief on £64000 @ 20% which equals to £12800.

Therefore your total tax payable = £31400 -£12800 = £18600.

Yes, people who have mortgages they will be paying far more than people who do not have mortgages. That's why it is called mortgage interest relief restricted!

Imagine our plight, when interest rates go back to it's historic norm then majority of landlords will be in serious trouble. Higher the gearing more tax...whereas under old rules (current) higher the gearing lower the tax/no tax.

Whether you make profit or not, as long as you have a mortgage when combined with your income pushes you into tax bracket you will be paying tax and it will be significant for portfolio buy to let landlords.

I don't make it anything like that.
In your example £36000 rental profit ( assume no emplyed income)
Tax is 20% of £36000 ( you have not used a zero rate band so I have not either) = £7200.
Now you get 20% relief on finance interst cost of £64000. ( seems very high but these are your figures). Which is £12800.
So you have made a loss of -£5600. So no tax to pay, £5600 loss carried forward.

Ah ok I see what you mean. You are using 'rental profit' as it stands now ( rent received - mortgage interest) rather than how it is being proposed - rental profit is rent recived ( less non finance costs).
So you rent recieved is £100000 and your mortgage interest is £64000. That's makes sense now.

Reply to the comment left by "James Leavesden" at "12/07/2015 - 01:37":

James,

In that example I assumed that, I made £36000 rental profit which gets added on to your income how much rental income would be irrelevant.

We add profits and interest to ascertain how much tax we need to pay. Someone only earning £15000 in employed income and then £30000 finance interest with no rental profits whatsoever will be expected to pay tax and would deemed to be higher rate tax payer. (Regardless of whether you made profits or not).

For avoidance of doubt, now interest is considered to be a "gain" that's besides the point whether it is cost or not.

Reply to the comment left by "Neil Robb" at "11/07/2015 - 21:08":

Hi Robb
No, as from 2020/21 no finance cost will be deductible from rental income.

To work out the exact impact of this you have to take into account rental profit and all other income like salary and pension, and the nil rate band and the 20% band.

Tax will be calculated on rental profit (without deducting finance costs) plus all other income, at the various tax rates. Then 20% of the finance costs will be deducted to arrive at the amount payable to HMRC.

If you really pay interest of £100,000, that alone will put you in the 40% tax bracket (if not 45%). So you will potentially pay HMRC £20,000 (or £25,000) a year more under the new rules as from 2020/21 than you would today. If your net rental profits and other income do not reach the higher rate threshold, then the above figures will be mitigated somewhat.

This extra “tax” will be payable even if you make a net loss from property after deducting finance costs. I regard it as a levy, rather than as income tax.

Examples of the potential impact are given at: http://www.mortgagesforbusiness.co.uk/news-insight/2015/july/how-the-restriction-of-relief-on-btl-mortgage-interest-will-affect-landlords/

The best thing is to use these examples as templates and put in your own actual figures.