Summer Budget 2015 – Landlords Reactions

I don't quite follow how profit can go from £10k now to £180k after 2020, that sounds exceptionally high gearing, presumably this is through helping distressed owners change from a mortgage to a lease to enable them to retain their homes? This might be the reason for the inability to sell some properties through contracts for ocupier's stability.

If this was the situation or was a hypothetical scenario, no PRS HP should be expected to subsidise another sector (tenants), by £170k extra each year. This can't go on for long before the LL goes bust.

What the treasury, contrary to the IFSs advice, don't accept is INTEREST ON THE MORTGAGE IS ALSO BEING PAID BY THE LENDER IE DOUBLE TAXATION.

So for a level playing field, banks should have to pay tax on all deposits as income, but not allowed interest paid to their savers as an input cost!

Ditto all other sectors of business.

What I suspect the treasury is doing is trying to tax the gain from "windfall" property value rises riding on borrowed money. There is logic for this, but there is a fairer answer, scrap CGT on PRS, and replace the 18/28% with the marginal IE 40% rate, for increases over RPI then the rest of the funding and all other costs fall into place as an input cost, This would hurt, especially in the SE, but tax would be paid on total profit over the period held.

Perhaps we should meet up over a pint, you're just over the hill, (black mountain) from me.

Reply to the comment left by "Seething Landlord" at "20/12/2015 - 08:27":

oops, very true allowable expenses missing on RHS! thanks, I'll be back 🙂

This calculator does not reflect current 10% Wear and Tear Allowance of 10% Gross Rent.

Although it won't be applicable from 2016 onwards however to compare today and 2020 it should reflect removal of 10% allowance so we can see affect of combined change of Wear and Tear allowance with restriction of interest relief.

Reply to the comment left by "Seething Landlord" at "20/12/2015 - 08:31":

oops, very true allowable expenses missing on RHS! thanks, I've now used the spreadsheet from this site and republished here.

Still very frightening!!

http://southwalespropertysolutions.com/LandlordTax

Reply to the comment left by "Saeef Khan" at "20/12/2015 - 11:30":

Saeef it is furniture allowance not wear and tear. I will have to increase my rents by 4.5% (the extra tax I will now have to pay) just to maintain my income. I must increase my rents as my margin is only just above 4.5%.

Reply to the comment left by "David Price" at "20/12/2015 - 12:18":

David,

I am sure you are aware that, Mr Gauke (current Financial Secretary to the Treasury, and the man currently bashing buy to let heads in parliament) his wife is a corporate tax lawyer. No wonder they aren't doing the same treatment to Limited Companies, as his wife wants more business (with buy to let investors on their own name potentially incorporating their business). Absolutely ridiculous.

Furthermore, if you read the finance bill, and it was hardly a debate worth listening to, in regards the potential legislation being imposed. BTL is like no other business, and yes they do provide a service. Who is the one who runs about for a tenant when their is an issue?!?! The tenant doesn't resolve it, the landlord/manager does!!

http://www.theguardian.com/money/2015/dec/20/buy-to-let-ignore-landlord-martyrs-time-for-bank-to-act

Guardian seems to be bashing Property118 by making a following heading for the article currently posted at Property118.

“How to tell a great tenant the rent has to go up a third”.

If you click on above link and then aforementiond heading it will direct you straight into Property118 discussion thread.

Reply to the comment left by "Rhys Jones" at "20/12/2015 - 11:35":

Hi Rhys

You have circled the £75,615 as being taxed at 40%. But two lines below this, a further £9,000 is taxed at 40%. This £9,000 is half the £18,000 by which your deemed income will exceed £100,000. At this point, as Trendo mentioned in his reply, you start to lose the benefit of the personal allowance.

But in your case, even the tax at 20% will be additional. If you have no other income subject to income tax than your rental profit of £10,000, then at present you do not leave the nil rate band.

Before you joined the thread we considered the so-called Megan Shaw example, where the new rule would push a landlord with a salary from the basic rate band into the higher rate band. But I have never seen a case where a landlord is moved from the nil rate band to the 40% band.

In 2020/21 the effective rate of tax on your real profit of £10,000 will be 187.23%. After working on your business for the year, you will hand over all of the profit to the state, plus a penalty of 87.23%.

You have circled a take home income as minus £8,723. That of course is an impossibility. This amount is in fact the penalty, which you would have to finance from some other source in order to prevent HMRC from bankrupting you.

As you say, it is very frightening. But at least you have the consolation that, as Osborne said, this measure is proportionate!

To maintain the same after tax income of £10,000 you would need to increase your rents by £32,078, or 17.8%, between now and April 2020. The odd £78 would be taxed at 45% because your deemed income would exceed £150,000 by that amount.

So, to end up with the same after tax income of £10,000, you would move from the nil rate band now to the 45% additional rate in 2020/21.

You will be no better off, but the government will be. Your tenants will be worse off.

Reply to the comment left by "Appalled Landlord" at "20/12/2015 - 12:53":

Isn't it also the case that, with a current actual profit of £10,000, Rhys is presumably entitled to working tax credits and maybe child tax credits - so will lose this money which would currently be being used to pay his personal bills etc. - because he will be deemed to be a high earner, despite actually facing a loss?