Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Alex Caravello" at "13/07/2015 - 12:19":

Alex,

I believe what he is trying to say is you need to find out at what level you currently pay tax.
i.e have you already used up your personal allowance ?

Secondly yes that is what HMRC are now doing.
(this is a very simple example but illustrates the point)

job + rental income = pay
interest at 20% = maximum relief

Thus pay - relief = taxable pay.

the exact number will change slightly but it's a fundamental change in the way in which you tax is calculated.

Back in 2008 I bought 2 flats off plan - to get them rented out I let them at £600 each although the mortgages were £635 and £637 per month . After 5 years I went onto a great BTL rate and not complaining now

However how can you be forced to pay tax on a loss making venture as it was back then with Factors , insurance etc .

If they want to hit LLs they should just say there is new x% tax on property income.

Reply to the comment left by "Phil Landlord" at "13/07/2015 - 08:17":

Hi Phil

If you currently have losses on rental property brought forward from previous years you will still be able to set off the current year’s property profits against them to reduce or eliminate the tax payable, I assume.

The effect of the changes means that your tax profit will be increased by adding back finance costs. This means that you will use up your brought forward losses sooner than you would have done if the rules had not changed.

If a landlord still has a tax loss after adding back finance costs (due to massive voids, as Mark suggested) then he will be able to carry this loss forward to future years, I assume.

The description from HMRC mentions a different sort of carry forward – of “excess finance costs”. I wrote “unused”; I should have used their term “excess”. In his posting of 10.35 today, Jason has described how that might work, and I agree with him.

Reply to the comment left by "Jason E" at "13/07/2015 - 09:57":

Yes, that is how it will work.

My understanding is your total income from all sources (employment, property profit, pension paypout etc ...) determines you tax banding.

Finance cost are no longer an allowable 'Expense' in determining profit from property. So profit from property is Rent received - letting cost, maintenance insurance cost etc... (but not finance costs). Hence everyone with a mortgage will be declaring a much higher 'Profit from property, than they did before - possibly resulting in a higher tax band when added to all their other income.

Finance cost are treated separately and relief from income tax is given on finance cost at a rate of 20% from 2018 for basic rate taxpaypers and tapering down from 40 to 20% for higher rate tax payers by 2021.

Reply to the comment left by "Appalled Landlord" at "13/07/2015 - 12:59":

Thanks Mr Appauled. My understanding is correct then and losses will be eaten away more quickly than previously. That will be the biggest issue I think.

Fundamentally people will change models and behaviours. Not just those working out the tax - but the whole basis of taxable profit is changing.

Not impacting myself - but how does that effect maintenance payments in a divorce, lending criteria, pushing basic rate payers into higher rate tax payers. Oh boy.

I mentioned earlier that HMRC may change this and basically only allow a % of your interest to be allowable dependant upon your tax status. Eg 100% allowance for BRT, 50% for HRT.... And maybe a sliding scale.

But I doubt it.

Either way my model is broke....so I sell a couple, pay off my debts and work fewer days a week. And to be fair.....I think that sounds like a proper plan. Happy days.

Headline news: “Government moves to close down an industry”. Is it the drug trade? Human trafficking? Counterfeiting? No, it is the provision of rented accommodation.

Once upon a time the 1.5 million individual landlords could expect to be understood and valued by a Conservative Government. Independent-minded folk who like to work for themselves and control their own destiny are now to be forced to join the serried ranks of wage-slaves of the big corporates and hand over their savings to large banks to invest. I cant think of any bigger attack any UK Government has ever mounted on the small business sector.

Finance is inherent in property investment. Interest is the dominant cost in a property business. Rented accommodation in the future is to be the preserve of large companies, with unlimited tax relief on their borrowings.

Look at the largest property investment company in the UK, Land Securities plc. It operates on gearing of about 32%, with net rental income of 631m and an interest bill of 193m, representing 61% of its costs. If Land Securities was a person, not a company, it would pay top rate 45% tax on its net profit before tax of 319m. If relief were restricted, as proposed by the Chancellor, to the basic rate, Mr Land Securities’ effective tax rate would rise to 72% and his income after tax would halve. What is Land Securities plc actually paying in tax? Just 1%. Will it pay any more under this budget? Not a penny. Now should that not be a more interesting target for the Chancellor than the private landlord with 5 student houses?

Reply to the comment left by "kathleen drea" at "13/07/2015 - 12:04":

Hi Kathleen

Thanks for the compliment, but everything I think I know about the subject has come from this forum.

Your last sentence sums the situation up perfectly.

The result of this change is a levy on a cost, not a tax on an income.

I do not think that HMRC have misinterpreted George Osborne’s intentions.

The government changes tax law to try to change people’s behaviour. It has decided to attack people who borrowed to buy properties in their own names to rent out, but not people who bought them through companies. This suggests that it wants rental properties to be held through companies. One impudent MP said that if we are running a business we should do it through a company in reply to a complaint by a landlord who posted near the start of this thread. I do not see how that will level the playing field with owner occupiers, as the propaganda has it.

Or it may want us to pay off our mortgages with the bailed-out lenders.

I would love to know what the thinking is behind this, apart from receiving more tax.

Adding all the finance costs back to the real profit or loss in order to calculate the tax, and then deducting 20% of finance costs from the tax calculated is the only way in which the relief can be restricted to 20%.

Reply to the comment left by "Ian Clapham" at "13/07/2015 - 14:20":

Surely you don't mean that George is doing this for his cronies in Big Business? Shock! Horror!

This is an outrage indeed. All other businesses are allowed to offset costs - which mortgage interest clearly is. Why should it be different to BTL landlords who run business whcih happen to be letting out property?

They are saying it is unfair because the average home owner is not able to offset the interest? That's because they are not running it as a business.

Not sure if this was mentioned above but can we get together and organise a petiion about this? Not sure how to do this but our voice should be heard.