Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Gary Mason" at "14/07/2015 - 00:08":

I'm trying to be optimistic too Gary, having said that we still have to be proactive in lobbying and informing the MPs and ministers who are in a position to affect what happens. Being realistic, one would hope that they will come to the conclusion that it is in no-ones interest that in an attempt at increasing revenue they create uncertainty and instability in BTL which may have the effect of reducing the size of the private rented housing sector if lots of landlords sell up or go broke, and that they will moderate the proposals accordingly. They may end up killing the goose that laid the golden egg if large numbers of landlords decide the diminishing rewards mean it is not worth the hassle of remaining invested.

I'm guessing Tory MP, Charlie Elphicke, had a hand in this.

He seems a bit left leaning, previously attacking utility companies and multinational business.

He also comes across as anti landlord to me (he once had a bad experience of renting back in the 1980's).

He used to be a tax specialist but reading some of the things he's written, doesn't seem to understand some of the mechanics of BTL. Perhaps the reason behind the confusingly odd way this has suddenly been presented as a 'tax relief'?

From 6 months ago;

https://www.lettingagenttoday.co.uk/1352-tory-mp-eyes-end-to-lettings-sector-tax-perks

Conservative MP, Charlie Elphicke is cited in the FT as one member of parliament saying this new data is sufficient for ministers to call a halt to buy to let tax perks such as wear and tear allowance and relief on mortgage interest.

Most people would say that is money which could have gone to people owning their own homes rather than investors. It underlines that tax breaks that buy to let investors get would be better off used to help first time buyers to own their own homes he says.

I doubt much of the money raised by this will be going to help first time buyers.

Note he wants allmortgage interest deductions scrapped for all tax brackets, not just for higher rate payers.

£1 million for upgrading the HMRC system is peanuts in the bigger scheme of things. Have not read about Government department spending billions & still got it wrong or the it did not deliver what it meant to deliver.

Reply to the comment left by "Neil Robb" at "13/07/2015 - 15:44":

My reaction to the headline announcement was the same as yours.

However, having read the HMRC publication on how the handling of loan interest will change, it IS NOT a blanket "no relief for mortgage interest".

The rules stated are:

1. Calculate profit/loss as now (i.e. deduct finance charges [interest and arrangement fees] from income).

2. Add profit to other income.

3. If under 40% threshold, then no further tax to pay.

4 If over 40% threshold, then pay 20% on the smallest of

a) lettings profit

b) finance charges

c) amount over 40% threshold.

It appears that the intent is to limit tax relief to 20%.

I have a gut feeling that this is "fair", but I can't get my brain around the details.
This is based on:
A. If property were in a business entity (not sole trader), then tax on profits would be (I believe) 18%.
B. When money is taken from the business, higher rate tax payers would pay tax at 40% on that money.
C. The proposals appear to require less tax than in the above scenario.
D. Basic rate taxpayers currently reduce their tax bill by 20% of finance charges; higher rate taxpayers by 40% (or 45%). This does seem in some way an unfair situation.

Reply to the comment left by "Michael Barnes" at "14/07/2015 - 09:12":

Micahel,

May I give you a scenario?

Earned Income from other employments: £35k.

Rental Surplus after all expenses: £10000.

Mortgage Interest: £62000.

How much tax I would pay under old rule and how much tax would be paid under new rule, assuming it is 2020.

Many thanks

It may be fair not fair and I do not wish to get into Google/Starbuck/amazon tax affair.

The issue that I have is.

a) Against tax principal's of wholly, exclusive ....
b) The retro affect. Besides being an accidental landlord the borrowing is part of the business model and this will be the crunch.

The tax savings between the the higher rate as at today was spent by the landlords in the economy on which the Treasury will collect VAT or other duties.

I dont see the Government using its normal excuse of trickle down economic advantages in this instance.

Reply to the comment left by "Gary Mason" at "14/07/2015 - 09:17":

I don't know the 40% threshold, but my understanding is

1. Add 10K profit to 30K other income = 40K.
2. Deduct 40% threshold (lets say 43K, because I do not have the actual number) = 2K
3. 20% tax on 2K = £400.

Reply to the comment left by "Michael Barnes" at "14/07/2015 - 09:34":

Wrong! Clearly you do not understand the impact of forthcoming legislation I'm afraid.

I don't believe this breaks the btl model, but just requires investors to readjust their portfolios. On the plus side, the inland revenue has given landlords up to four years to re-adjust their portfolios. Those who are highly leveraged, with multiple properties should find enough time to reduce their overall risk profile by selling off the more highly geared properties and deleveraging their existing portfolio?

On a slightly different but related note...I am surprised no one has raised the issue of how the budget changed to dividend income will affect those working through limited a company. It has will effect my IT consultancy business to the tune of thousands of pounds. Anyone using a limited company for the property portfolio will have to look at the implication for them.

In a nut shell only first 5K of dividend income will be tax free. The next 30k will be taxed at 7% (a new tax), and upwards of that 33.5% (used to be 25%).