Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Ray Davison" at "10/12/2015 - 11:01":

The benefit of a limited company is at all mortgage interest and finanacial costs can be claimed as they are exempt from this restriction but there a lot of other things to consider on deciding on your plan going forward

Reply to the comment left by "David Price" at "10/12/2015 - 09:26":

David, I am guessing that you are probably obtaining yields in excess of 10%. - I think I would be inclined to promote high yields in my area if I thought it would increase demand and prices for the properties I owned.

We may have seen property prices increase in other parts of the South East but this is balanced by yields of circa 4-5%.

May be worth a separate thread comparing yields and house price growth in different areas. In my area HPI around 8-9% over the last 12 months and, as said above, yields circa 4-5%.

Reply to the comment left by "S.E. Landlord" at "10/12/2015 - 11:59":

Gross yields are enormous but nett yields, after the cost of servicing DWP tenants, finance costs and maintenance on the building, are down to single figures.

Reply to the comment left by "David Price" at "10/12/2015 - 12:11":

The 4-5% yields referred to in my part of the South East are the gross yields.

Swings and roundabouts!

Reply to the comment left by "Carol Duckfield" at "10/12/2015 - 11:30":

Hi Carol, I understand that but with the new proposals there will be a 20% tax credit for finance costs, effectively allowing you to deduct those costs at 20% (Not say the 40% of a higher rate tax payer). You will therefore get the same rate of deduction as a company.would get.

I totally get it that a higher rate paying landlord will be worse of than they are now but I am struggling to see how incorporation will change this. As I said, I must be missing something.

Reply to the comment left by "Ray Davison" at "10/12/2015 - 12:29":

Simple example:-

SOLE TRADER

£100,000 profit
£100,000 finance costs

Taxable profit in 2020 = £200,000

Tax relief in 2020 = £20,000

COMPANY

£100,000 profit
£100,000 finance costs

Taxable profit in 2020 = £100,000
.

Hi what it means is you are only allowed to deduct 20% of your total finance cost as so called relief the other 80% will be taxed at 40% for most if not all portfolio landlords

Fur example if u have 100k interest you will knock 20k off your tax bill and get taxed 40% on the other 80k if u incorporate them you will be able to deduct the full 100k so the difference is huge

I have tried to keep it simple the government have shrouded it in mystery so it is hard to understand

In reality we never really got 40% relief you got 100% as you where allowed to deduct all of your finance costs as a cost to your business the whole thing is a con by this nazi style government

Mark am I on the right track in simple terms

Reply to the comment left by "NW Landlord" at "10/12/2015 - 12:56":

You are indeed 🙂
.

Wish I was wrong ?

Reply to the comment left by "Mark Alexander" at "10/12/2015 - 12:53":

Hi Mark,
I confess I have not read the actual documentation, only many peoples comments on it, which probably varies depending upon their depth of understanding of it - that is always a big mistake!

1. In your example, for clarity, is the profit (In both scenarios) after deduction of the finance costs?

2. Therefore as a sole trader the finance costs are being added back (As virtual Income?) to determine tax payable? If this is so, I had not taken that on board.

3. If you are currently a 20% tax payer, is this adding back of the finance costs used to determine your marginal rate of tax? If so, this seems to break the separation between earned and property income in the tax system.

If all that is so, then I can why incorporation would be a benefit in this scenario. However even given the tax situation as it is today, in the example given, the higher rate paying sole trader would pay £40K tax and the corporation, £20K so the corporate body was always a better way from a tax point of view.