Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Dan Smith" at "08/07/2015 - 17:41":

OK, so here's a "dummies guide" from my perspective.

I've scared myself to death by the way!

Let's pretend my interest bill is £20,000 a month.

Now let's also pretend my rental income is also £20,000 and I have no other expenses.

As of today I would be able to set off one against the other and pay no tax on rental profits because I wouldn't have any.

With me so far?

OK, so now lets pretend I earn a living elsewhere and pay 40% tax on that income.

So we have established I am now a 40% taxpayer.

The problem from 2017 (or whenever the Chancellor announcement take full effect) is that whilst I will still be able to offset all of my mortgage interest against my rental income, he will only give me 20% tax relief, not the full 40%.

The net result is that I will be £4,000 a month WORSE OFF!!!

That's because £4,000 a month is 20% of my mortgage interest that I can no longer claim.

We are going to be releasing a new calculator later this evening or tomorrow morning. The calculator will be embedded into an article called "Chancellor hits landlords for billions! How will this affect your cashflow?"

We will publish a link in tomorrows Newsletter.

WATCH THIS SPACE!
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I still don't understand how that'd work.

What is taxed is the profit after allowable expenses.

If I get £1000 in rent and pay £1000 for the interests on my mortgage the taxable profit is 0 and I don't pay any tax. My income tax bracket is irrelevant.

Now, if the interests are only £800 then I make £200 taxable profit. Tax is £40 or £80 (or £90).

"Tax relief on Buy-to-Let mortgages to be reduced to the basic rate of tax" does not make sense to me in that context.

At the moment there is no 'tax relief' apart from being able to account for the full amount of interests paid as allowable expenses for tax purpose.
The tax bracket is irrelevant.

Reply to the comment left by "Ros ." at "08/07/2015 - 15:37":

AIUI.

would I no longer be able to put the £60,000 in as a cost?

Yes you still would, provided rents were your only income.
If your income went up to a joint £87000, this would only affect the £1000 above the higher rate threshold.

IMHO, the mortgage interest aspect of this will mostly hit highly paid workers successfully doing BTL as a sideline.

If you have quit the day job to be a landlord and you are paying a significant amount of higher rate tax, you need to be structuring your tax affairs differently.

The Anti's are jumping up and down about this but it will make little difference to most landlords. The sinister thing is that it has been done by a Tory government. The writing is on the wall.

Reply to the comment left by "Mark Alexander" at "08/07/2015 - 18:04":

I was about to say I look forward to receiving your calculator, but there's nothing to look forward to. The loss of the 10% W/T allowance really piles on the pain.

This is a purely political move by the Chancellor to keep the 'housing crisis' doom mongers quiet.

Would you be able to provide a 'dummies guide' ; pros/cons to running as a Ltd Company?

The new article and calculator is now published, see >>> http://www.property118.com/chancellor-hits-landlords-for-billions-how-will-this-affect-your-cashflow/76185/

In response to Lou's question, as soon as one of our tax expert sponsors produces a guide (highly likely due to the news today) I can assure you that we will be publicising it.
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Hi Mark

Thanks for your reply but I'm with Romain, I still don't get what this tax relief is?

Whether you're a higher or lower rate tax payer you can offset all of your interest against the rental income, I get that.

So what is this 'tax relief'?

Before the budget it wasn't a basic rate tax payer could only offset 20% of the interest and a higher rate payer 40% of the mortgage payments, it was the full 100% so what am I missing?

Thanks

Reply to the comment left by "Romain Garcin" at "08/07/2015 - 18:20":

Hi Romain and Dan,

in the tax return the interest payments are entered in a separate box, so HMRC will use this sum to calculate the extra tax to be paid in the tax calculation which is at the end of the return.

Reply to the comment left by "Dan Smith" at "08/07/2015 - 18:31":

Hi Dan,

In effect you reduce your rental profit by subtracting your interest only mortgage payments.

Pre Budget this was regardless of what tax bracket you were in eg 20% or 40%

Post Budget the amount you will be able to offset against taxable income will be no more than if you were in the 20% bracket even if you are a higher rate tax payer.

Reply to the comment left by "Mark Alexander" at "08/07/2015 - 18:04":

OK, so now lets pretend I earn a living elsewhere and pay 40% tax on that income.

Yes, that is the crux of it Mark.