Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Mark Alexander" at "06/09/2015 - 12:33":

We are singing from the same hymn sheet but I wonder if we are looking at different hymns? I was referring to the part at the end of the article which says:-

" TODAY:

Your buy-to-let property earns £20,000 a year in rent and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit.

So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.

2020:

Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.

Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.

You will have to pay £5,000 tax in this scenario, so you make no profit at all. "

Is this incorrect in principle (ignoring all approximations)?

Reply to the comment left by "David Price" at "06/09/2015 - 13:13":

I see, I was referring to the case study presented by Mr Chilvers.

Corrected version, before interest increase:

“Rental income totals £330,000 per year. The cost of mortgage interest is £80,000 with maintenance, insurance and other expenses coming in at £100,000. That gives a taxable annual profit of £150,000. His tax bill today is £53,600. When the new taxes are fully applied he will pay an extra 37pc in tax, with his bill rising to £73,600. He would then be paying a tax rate of 49pc on his real profit.”

He also said .....

‘As my gross income goes down, my tax percentage goes up’. One of Mr Chilvers’ biggest anxieties is the way the proposed tax will bite when interest rates rise. Because of the perverse way in which the tax operates, landlords will actually pay tax at a higher effective rate when their mortgage costs go up – as a result of their having less gross profit.

Corrected version, after interest increase:

“His mortgages currently charge an average rate of 3.3pc. He calculates that if this figure lifts by two percentage points to 5.3pc, his mortgage interest bill will be £128,000. This will reduce his annual profit to £102,000. The tax calculated on his theoretical rental profit of £230,000 will stay the same, but the tax relief will increase by £9,600, so the tax payable will be reduced to £64,000. However, his effective tax rate, expressed as a percentage of his real profit, will then be 63pc.”
.

I have been reading the comments at the end of the Guardian article. Invective squared, cubed or perhaps even to higher powers!

Do none of these people realise that it is the end user who always pays? It is not Tesco which pays business rates, it merely acts a conduit between the customer who pays and the government which collects. Similarly landlords only pass on money paid to them in rent; the new tax regime will result in bankruptcy for some and hence the loss of a rental home and for others vastly increasing the rent, possibly also leading to the loss of a rental home.

But the overreaching problem as far as I am concerned is the establishment of the principle of taxing turnover rather than income. A very dangerous precedent.

Reply to the comment left by "David Price" at "06/09/2015 - 13:32":

Yes, I just had a look at the comments. There is one who seems to see it as a chance to plug his book. Who wants to read some bitter, jealous person's rant about BTL? I wonder why people who aren't engaged in BTL are so massively interested in it. I wouldn't study anything like that in great depth unless I was in the business myself.
I find there is usually a psychological basis for this kind of seemingly irrational behaviour. It's like that Charlie Elphicke guy - he once had a bad landlord, so now all landlords are scum. It's simple prejudice - tarring everyone with the same brush.
With the guy in the comment section of the Telegraph article, he is anonymous so we can't work out the psychological bases of his intense interest in the subject. I find irrational behaviours are usually explained by prejudice and/or jealousy though. I've observed this time and time again. Eg. when you can't understand why someone is being off, I'd look at those two explanations first.
It could also be familial - maybe an older, preferred sibling has done better financially and maybe parents set up the sibling rivalry. Or maybe a friend from school or university has been more successful financially and in other ways... there has to be a reason for the bitterness and invective and insistence on perpetuating the 'blackwhiting' of GO.
These people are going to be furious when we win our campaign - NB. newspapers never start campaigns unless they know they can win them. I'd like to be a fly on the wall then!

Reply to the comment left by "Mark Alexander" at "06/09/2015 - 13:16":

Hi Mark

You have shown what Mr Chilvers ought to have said about what will happen when interest rates rise, and is what the online version should be corrected to.

When that happens the error that you pointed out at 10.03 today will disappear, so for any late-comers, this is what it was:

“ ‘As my gross income goes down, my tax bill goes up’
One of Mr Chilvers’ biggest anxieties is the way the proposed tax will bite when interest rates rise. Because of the perverse way in which the tax operates, landlords will actually pay more tax when their mortgage costs go up - even though this will result in their having less gross profit.”

Unfortunately the paper has been printed with this error.

Introducing a non principle resident annual tax instead of the current measures of the changes to interest and wear and tear sounds a possible goid idea.

maybe at a quarter the rate as council tax for the property in question.

Assuming £300 per year for a property and about 5 million rented properties that would bring in £1.5 billion a year which is twice as much money as they believe they will raise with the current changes. However because the pain is spread amongst all rentals (mortgage free as well as corporate) its a much lessor impact

Reply to the comment left by "Roger Rabbit" at "06/09/2015 - 15:18":

It may be a fairer way of taxation but it will inevitably be paid by the tenants in the form of increased rents. As a landlord this concerns me a little but it will greatly bother my tenants who are already struggling to pay the rent. Everyone, especially GO has to realise that it is always the end user who pays all the taxes. This applies whether you rent a house or buy a burger in MacDonalds.

Higher rents equates to less first time buyers being able to save for a deposit.

David Price, in very competitive markets on the long term you would be correct. In not so competitive markets in the short term you are unfortunately mistaken.

Also we could argue the opposite of what you say.....if there is a cut in taxes do products and services get cheaper? Well for the supermarket sector probably its going to happen but for other sectors like renting out homes if there was a cut in taxes its probably not going to go towards lower rents

Reply to the comment left by "Roger Rabbit" at "06/09/2015 - 15:37":

Roger, I have 10 to 20 applicants for every vacant property, I could but do not, charge whatever I want. I rent single self contained affordable accommodation in the south east, £90 per week which is as low as my expenses will allow, and my tenants are struggling. Add another six pounds a week for quarter rate council tax and all would quickly fall into arrears.

A non principle residence annual tax (Which incidentally has already been partially introduced as the 'Envelope' tax) might work in London but in rural and semi rural areas it would be disastrous.

Reply to the comment left by "BTL INVESTOR SCOTLAND" at "06/09/2015 - 11:12":

Hi BTL I S

The danger is that if we suggest different taxes, George Osborne is likely to impose them as well, rather than instead.