Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Seething Landlord" at "20/12/2015 - 23:47":

No, it has no validity as if if you comapre the cost of the repayment mortgage over term even without accounting for it's lower rate of interest the total repaid will be far lower than the interest only BTL mortgage.

Example £100k plus £3k fees at 3.99 = annual repayments of around £4109 (APR of 4.42 total repaid over 15 years £100k (principal) and £37044 interest. E&OE.

Interest only over same term = £61635 with principal outstanding.

To suggest otherwise compares the cash flow "cost" of a repayment where the homeowner actuall pays the mortgage off and the interest only where the full amount is outstanding i.e. apples and pears.

The wo really shouldn't be compared at all as the former is about ownership and the second is a business decision decision related to strategy.

Reply to the comment left by "Saeef Khan" at "21/12/2015 - 17:23":

From reading research presented to the government, we're more likely to see:-
- a reform in Council Tax ie revised outdated CTax bands updated and/or more bands at the top & bottom, or CTax replaced with a housing consumption tax & property value tax levied on both tenants & owners. The simplest will be a flat rate levied on the current property value (not the outdated bands), with regular reviews as a result of house price values, with an adjustment in the distribution of revenue collected so local authorities in lower house price areas that wouldn't be able to raise enough, receive a comparable amount. If CTax was replaced with a genuine property value tax of eg 1% pa on property owners, the perception is this would dampen house price volatility (OECD in 2011 estimated this would have lowered house prices by around 20% at the peak in 2007). This idea put forward is not to be dismissed lightly for although the UK collects more revenue through property & wealth tax than almost any other OECD country, there are already 14 out of the 34 OECD countries operate some form of "recurrent" tax levied primarily on the property owner not the occupier, on the value of residential properties to in part fund local services
- the next route most favoured by economists is a land value tax on high value but undeveloped land. Previous attempts in the UK to introduce this form of tax has failed as landowners have been capable of lobbying against this tax that imposes a windfall loss on them. It has even been discussed that this could later be extended to land beneath existing buildings with an exemption of one's primary residence but does this indicate land beneath residential investment properties won't be exempt
- replace Inheritance tax which is perceived to have a number of weaknesses & it can be avoided by the very wealthy, with a tax paid by the recipient - either i) a so called lifetime capital receipt tax whereby all gifts received are taxed in a consistent way or ii) presented as a tax on unearned income received over one's lifetime rather than a tax on bequests, with every adult having a lifetime threshold for receiving tax free gifts.
- although there are political difficulties with the following & concerns of discouraging people from selling, a reform of CGT is needed as the tax is too low and OO's & the PRS in some parts of the UK have benefited from windfall gains that go untaxed ie if no sale and OO's are automatically exempt. Therefore instead a "tax on umputed/notional rents" is being considered (currently 4 countries in OECD do this)
- Although currently the economic case is not strong enough at present, it is not off the drawing board to introduce some form of annual Wealth or Net Wealth Tax on world wide assets, possibly offset by debts & other liabilities (which many landlords are currently trying to find ways to reduce since Clause 24 announcement!). Assets to include all property, savings, insurance plans, private pensions, trusts. Three OECD countries already have this tax; France, Norway & Switzerland
In summary, the view is:-
- the UK has a high public deficit.
- inefficient taxes need to be replaced with recurrent annual taxes
- the super rich helped create the crash but have not contributed to clearing it up
- well designed property taxes could enhance market stability & increase rates of housebuilding
- it's easier to raise tax on property values as they are easily identifiable & the government has a ready made mechanism for valuing the asset
The above recommended areas of taxation ignores SDLT as the recommendations have already been introduced. Even Clause 24 is likely to have emanated from this research as a way of taxing property investors windfall gains. The subsequent most favourable reforms recommended are a) CTax reform ie a consumption & property value tax on owners as well as occupiers, b) a new Land Value Tax & c) reform of IHT. This stems from the research carried out by the Institute of Public Policy Research between 2006 to 2008 with the second wave of research between 2008 to 2010 & third wave 2010 onwards yet to be fed in to the Wealth & Asset Survey model to assist with reforms of CGT & an introduction of a form of Wealth Tax, to include recommendations relating to physical wealth other than property, pensions, wealth owned by foreign owners, companies & trusts, results of which are yet to be published as far as I can determine.
Frightening stuff but it is proven that the current system of wealth taxation is flawed (hence why so many people from abroad choose to invest & live here) and we cannot bury our head in the sand over the fact UK Plc needs to reduce its deficit.
I know Mark Alexander will say I'm being a Victor Meldrew again, but as I've always said; "I do not want to be wise after the event" and although I dislike & fear the findings/recommendations, I can see the sense in many of them. Where else is UK Plc going to get additional revenue from that's desperately needed whilst simultaneously stabalise house prices.

Reply to the comment left by "Laura Delow" at "22/12/2015 - 08:39":

So what happens when there is market crash and negative equity becomes the norm....do we get a tax rebate?

Reply to the comment left by "steve p" at "22/12/2015 - 01:34":

Hi steve

It’s a shame though that the article says “From 2017, they will be able to claim less tax relief on their profits”.

We don’t get any tax relief on our profits. We pay the same rate of tax as any other individuals on our profits, which are calculated on the same basis as any other business in the country.

The article should have said ”From 2017, individual landlords with mortgages will pay an extra amount of income tax that could exceed their real profit”.

Reply to the comment left by "money manager" at "22/12/2015 - 07:50":

You are missing the point that the crucial issue for would be owner occupiers is affordability rather than overall cost. It is on that basis that landlords have an apparent advantage, it costs them less per month to fund the purchase.

Reply to the comment left by "Appalled Landlord" at "22/12/2015 - 09:41":

That is true, at best it should really say less tax relief on income rather than profit, the thing that has surprised me most is how many people don't seem to understand the difference between income and profit and that offsetting your expenses against your income to get your profit is not a subsidy.

I needed to buy some last minute gifts yesterday so I went straight to Amazon and looked around, but then I realised that they were tax dodgers so I changed my mind and got on a train to town and went to Boots but realised they were tax dodgers so I went to Sports Direct but remembered that all their stuff is made in sweat shops to avoid tax, so I went for a coffee to calm down but had to leave Starbucks as they are tax dodgers, so I decided to come home and go online but realised that Google are tax dodgers, so I gave up and decided to complete my HMRC income tax self assessment instead. Merry Christmas to us all and God bless us everyone.

Reply to the comment left by "steve p" at "22/12/2015 - 10:49":

Hi steve

It shouldn’t mention the word “relief” at all. We don’t get one.

Using the word makes people think that we are getting something like MIRAS. That really was a relief, which owner-occupiers used to get.

The government and supporters of the tax grab use the R word to mislead the public. We should avoid using it.

Reply to the comment left by "Trendo " at "22/12/2015 - 11:00":

Last minute gifts!... Gosh you are keen. I haven't even ventured out yet 🙂
.

Reply to the comment left by "Appalled Landlord" at "22/12/2015 - 11:24":

Good shout, the definition of tax relief is:

remission of a proportion of income tax normally due on earned income.

I guess an off-settable expense would be better, unfortunately though tax relief does seem to have stuck.. I guess it depends, it comes down to are we a business or are we investors, if you borrowed money to invest in say shares, the interest on that money could not be offset against your profit however if you borrow money in a to say open an extra coffee shop in a business then you can... This is where the line gets a bit blurred.

There are clearly landlords where it is a full-time job but also it can be argued that people that own just one property and that property is fully managed by an agent so they essentially do nothing is an investment.

I can totally see the above dilemma, but the government is not having that discussion they are arguing on false grounds about not being fair to owner occupiers and comparing it to MIRAS which is not a valid argument.

The issue is more about the lack of houses in certain areas or the increase in population in those areas that is driving prices up, personally I do think that there is a risk in some areas of the PRS, some people are extremely highly leveraged to the point where they have very little equity and the income just about services the interest payment, they are relying on capital increases, these should have failed were in not for historically low interest rates. I can understand how a FTB may see it as unfair that in some situations they may be able to buy a BTL property but they cannot buy that property to live in, personally I think there is enough risk there to say that they also probably pose a danger if they bought the BTL property.

Having said the above the alice tax and extra tax on SDLT is not the way to go about it, all you need to say is BTL mortgage must be not exceed rent based on a repayment mortgage at the same percentage as owner occupiers are tested at with the same LTV, currently 5-7%, this would actually have the affect of stopping the high gearing, still allow those that have a pitiful pension invest in property but at the same time as people will have to essentially have more equity and make sure they do make a profit the revenue from the sector will be increased.