Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "James Tallis" at "14/07/2015 - 16:43":

James

You have that slightly wrong.

Your employee NI is at 12% for salaries of between £155 and £815 per wek (£8,060 to £42,380). Over that it is 2% of the salary. This amount is deducted from the amount the comapny pays to you.
Your employers NI is at 13.8% of your salary over £156 per week (£8,112 per annum). However the first £2,000 (from 2016/17 £3,000) of this is not collected by the government so you don't have to pay it.
Not quite as bad as you make out.
You can of course pay dividends instead of salary. After the budget not quite as attractive as it used to be but still better than paying a salary.
There are also ways of mitigating the IR35 effect so that a low salary can be paid.

(sorry for being off topic)

Reply to the comment left by "kathleen drea" at "14/07/2015 - 16:51":

I agree with you on that Kathleen, there are several people who either still don't understand that or explain it badly.

To repeat what I said in my previous post ...

Mortgage interest does not add to your tax liability. You have to imagine you don’t have a mortgage and then work out your tax that way. Then if you do have a BTL mortgage, take 20% of of the interest you have paid on that mortgage, and that’s how much you can knock off your tax bill.

The way to calculate your taxable income has changed, previously mortgage interest was treated as a fully legitimate expense regardless of what rate of tax we pay. Now it isn't treated as an expense at all, we all just get the same 20% tax relief.
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Reply to the comment left by "Mark Alexander" at "14/07/2015 - 16:51":

Mark,

Thanks for your detailed response. It does make sense indeed however, the points you have raised it is besides the point raised by Ros.

The point is interest payments she made to the lender they were added on to her income and she was expected to pay 20% tax, if she was higher rate tax payer. Yes, she would reclaim 20% tax but she would still pay 20% tax if she is higher rate tax payer.
So, whichever angle you look at, she has paid 20% tax on something she never earned but paid out!!

In above example I have assumed that, she is a higher rate tax payer if she is basic rate tax payer then it does not make any difference.

Once you go above £43k then every pound you pay in interest you will pay £0.20 pence.

I hope this clarifies your misunderstanding.

Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:01":

OK let me try again.

Assume I earn £50,000 a year from my job.

I have just one BTL property.

It burns down so I can't collect any rent for a whole tax year.

I pay £10,000 in mortgage interest during the tax year but I've received no rental income.

Do I just pay tax on my earned income of £50,000 or are you telling me I have to pay tax on £60,000?

I am saying I will only have to pay tax on the £50,000 income from my employment.

What do you think?
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Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:01":

Wrong Wrong Wrong

You have got the situation backwards.

There is a misconception that the interest is somehow added to the income. Not so.

If currently you have £35,000 of rental income, £5,000 expenses and £10,000 interest your income is £35,000. This will not change.

Currently you pay tax on the income less the allowable expenses. These are the expenses of £5,000 and interest of £10,000 making a PROFIT of £20,000. You are taxed on this profit, not the income.

Under the new rules the income will still be £35,000. Why would it change?
The new PROFIT will be £30,000 (£35,000- £5,000). You will pay tax on this profit.
Once you have worked out your tax on this profit you will be entitled to deduct 20% of the interest that you have PAID as a deduction against the tax.

Reply to the comment left by "Mark Alexander" at "14/07/2015 - 17:06":

Mark,

You pay tax on £60k!

Explain it however you want !

Net result is on paper your income is far higher than it physically is.
You will have an increase in your tax bill just from the 10% W&T loss, the propulsion into a higher tax bracket, the removal of allowances(100k-121K), the withdrawl of benefits and other tax aids (CTC, WFT credits & child benefit,carers allowance and prob others as well) due to artificially inflated income that is not physically there to utilse. Your carefully & responsible planning and years of graft, blood sweat and tears, tenants from hell etc are all pretty much wasted now. A landlords chips have been well and truly pissed upon.

you will get caught by some, all, or very unlikely none of the above.

Meanwhile in other news, the guy sat next to you wont be affected at all , he does the same thing but has 3 letters after his name "Ltd" and continues as before with no extra tax , no knock effects, and will most probably be eyeing up your portfolio for a cheeky offer. Yep David we are all in this together , on the flat and level telytubby field.

Reply to the comment left by "Simon Lever" at "14/07/2015 - 17:10":

You all over the place mate. Please redefine your thoughts or you are in shock for tax bill unless you prepare yourself....:-)

Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:10":

Gary

Talk to your accountant and get him to explain it to you.

If he tells you the amount to pay tax on is £60k then come and talk to me because in the case put forward by Mark you would pay tax on the £50k and then deduct £2,000 from the tax due.

(btw I am an accountant)

Reply to the comment left by "Simon Lever" at "14/07/2015 - 17:10":

Thank you Simon, I like your explanation. At least somebody agrees with me LOL

We all know we are going to be worse off but despite over 500 comments now, a lot of people haven't clearly understood exactly why.

At least they are making an effort though, there are hundreds of thousands of landlord who still don't have the slightest clue what the effects of the budgets will have on their finances.
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