Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:26":

Please explain why you think he will be taxed on the £10,000 interest.

Reply to the comment left by "Michelle O'Connor" at "14/07/2015 - 17:34":

Michelle,

There is not point bragging about what profession you are...I have met accountants who did not know what 13 x 5 equates to...

I am also an IFA (independent Financial Adviser) and the guy guy who has agreed with my posting is "Appalled Landlord" is also an accountant.

Regrettably, the draft legislation does quite clearly state that, your financial cost is added to your income to determine whether you are basic rate tax payer or a higher rate.

Finance bill will come out tomorrow and that should spell out any ambiguities however as we stand today..I have extensively discussed this with my accountant who is leading accountant in the country whose advise is sought from industry experts.

Reply to the comment left by "Simon Lever" at "14/07/2015 - 17:38":

Talk to Osborne

Reply to the comment left by "Mark Alexander" at "14/07/2015 - 17:25":

I am on the verge of giving up trying to explain this!

Explain what? What are you explaining to me? I am in agreement with what Simon is saying.

Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:32":

Sorry Gary, I think you are the one confused.

The anti landlord brigade will be loving us all bitching at each other, so I am out.

Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:41":

Gary. I don't believe anyone on this forum states their profession to 'brag'. Trust me, being an Accountant is nothing to brag about. A few people have indicated they are giving up trying to explain this. In the words of the apprentice, "I'm out"!

Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:42":

Gary
Please read the policy document here: https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

I clearly states: "Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs."

Nowhere does it say your income will increase if you pay interest. I just says you cannot deduct from your income all of the interest that you used to be able to do.

Whilst your income will not change your taxable profits will increase meaning there will be more tax to pay, providing there is an income!

I think that you are confusing or mixing up the difference between income and profit, which are two completely different, although related, things.

Reply to the comment left by "Simon Lever" at "14/07/2015 - 17:54":

The end result is same, so scenario Mark represented you would be worse off by £2000.

Effectively, you are paying 20% Tax on interest, whichever way you calculate the end result stops at £2000.

Someone with no income paid £100k interest would be expected to pay £20k after tax relief...

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

Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating the profit. In practice this tax reduction will be calculated as 20% of the lower of the:

1. finance costs not deducted from income in the tax year (25% for 2017 to 2018, 50% for 2018 to 2019, 75% for 2019 to 2020 and 100% thereafter)
2.profits of the property business in the tax year
3. total income (excluding savings income and dividend income) that exceeds the personal allowance and blind person’s allowance in the tax year

If no rental income due to fire, then 2. above = 0 so no relief allowed as that is the lowest figure as per para above ?

Reply to the comment left by "Gary Mason" at "14/07/2015 - 17:41":

Sorry Gary, it’s £50k, ( in reply to Mark’s question at 17.06: http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-53/#comments

I think you misled Monty Bodkin by the way you presented your example earlier today. You calculated the tax on what we would call rental profit. Then you calculated the tax on the interest amount separately. That made it look as if HMRC were going to treat interest as income.

The right way is to calculate the tax on the amount that HMRC will regard as rental profit, which is our profit figure plus interest. Arithmetically the results are the same.

We deduct finance costs and other costs from our rent receipts to find what profit we have made from letting. Currently HMRC use the same profit figure as us, and work out the tax on it. (I am ignoring Wear &Tear allowance and capital allowances to keep it simple.)

We will continue to deduct finance costs in future in the calculation of our profits.
But by 2020/21, HMRC are going to stop deducting the finance costs in their calculation of rental profit. So the latter will be higher than our profit figure. Mentally we will have to add finance costs back to our profit figure in order to arrive at theirs.

We will be adding it back, but HMRC won’t, because they won’t deduct it in the first
place.

HMRC will just stop treating our claim for finance costs as an allowable deduction from rents received. Instead they will deduct 20% of finance costs from the amount of tax that they calculate. This is how they will restrict “relief” to 20% for all taxpayers.

To put it another way, HMRC are not going to treat our interest as income and tax it. They are going to ignore it and calculate tax on a profit figure which is higher than our profit figure - by the amount of interest.

I have stated that this change is a levy on interest as a shorthand way of expressing the restriction of relief to 20% which will lead to most landlords paying more tax. But I did not mean that HMRC would treat our interest cost as an income.