Summer Budget 2015 – Landlords Reactions

The point that people have seemed to have forgotten is why this move is taking place. It's not only to plug a hole in the national budget but to also bring stability to the property market by getting us away from a position of boom and bust that is an inevitable consequence of high leverage. Having a relief which allows one to leverage further is a direct contributor to this. See excerpt from bank of England below. I believe energy would be better spent talking about how to mitigate tax operating in the new regime as set out by the last budget.

BOE comments.

Any increase in BTL lending in an upswing will add further pressure to house prices, which is likely to prompt owner-occupiers to take on even larger loans, thereby increasing overall risks to financial stability', it has said.

To back its claims, the Bank points to American studies that found those US states with a larger and increasing share of transactions by investors saw a bigger boom and bust in house prices.

The point of all this is that the Interest Coverage Ratio the Bank wants to be able to influence is directly affected by the tax relief a landlord gets.

Reply to the comment left by "James Tallis" at "16/07/2015 - 09:11":

Agreed and good post James.

This is why i believe we can only mitigate the damage through business and tax planning and possibly influence the implementation.

We are not.gping to change the policy direction as Mark Carney and public opinion are behind it.

Reply to the comment left by "Jason E" at "16/07/2015 - 00:29":

Hi Jason

I think you were right the first time: £3,400: http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-70/#comments

My calculation follows your first one on this forum, and it may look as if mine was disagreeing with yours, but without saying why. However, yours was not live when I posted mine.

I have just noticed for the first time your posting of 20.41 last night sharing with us Megan Shaw’s explanation about reason for the restriction on interest relief. But I had not seen that by the time I posted something at 21.06, and I always refresh before posting in case somebody has already made the same point.

I have noticed this phenomenon before. I have been refreshing regularly during the day to keep up with the thread, but sometimes when I go back a page or two I find things that weren’t there before.

My calculation of Syed’s example was wrong. This was because I forgot about the restriction of relief to 20% of total income that exceeds the personal allowance. It was late at night!

This restriction does not apply to the extrapolation of Megan Shaw’s figures, as the finance costs are lower than total income, so the conclusions I posted last night are unaffected.

Applying the restriction, the calculation becomes:

£11,000 at the nil rate, £32,000 at 20% (£6,400) and the remaining £17,000 at 40% (£6,800), making total tax £13,200.

Relief would be restricted to £60,000 minus £11,000, or £49,000. At 20%, this would be £9,800.

Deducting £9,800 from £13,200 leaves £3,400 payable.

In your second calculation you must have added £11,000 as other income, making total income £71,000. But this extra amount does not exist as part of Syed’s example.

Reply to the comment left by "Appalled Landlord" at "16/07/2015 - 10:43":

Our systems flag post for moderation so they do not always appear immediately. This is a security measure our web developers built for us. The system detects links, significant use, telephone numbers, email addresses posted, member profile access from multiple devices within a given timeframe, posting under two member profile accounts from a single IP address (amongst other things) and put's them into quarantine for moderator checking.

It can be a bit annoying but it does filter out the spam and alert us to trolling so we think it's worthwhile.
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Reply to the comment left by "Mark Alexander" at "16/07/2015 - 10:53":

Hi Mark

Is it not possible for them to appear as the latest posting at the time they are released by the moderator, rather than back dated to the time of submission? Otherwise, those of us who think we are keeping up to date by refreshing regularly are in fact missing some comments.

Reply to the comment left by "Appalled Landlord" at "16/07/2015 - 11:09":

Good point, I will investigate that.
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Reply to the comment left by "Appalled Landlord" at "16/07/2015 - 10:43":

Hi

I too claim night fatigue. I won't bore you with the details but I basically copied the number incorrectly out of the spreadsheet in the second example. The correct calculations based on ...

90K property rental, 60K interest, 30K other costs and 11K income are ...

£5600 which is £2200 more then when they didn't earn 11K (£3400) i.e. they are paying 20% more (which is what you expect as although they are getting 11K more relief at 20% in this case their extra 11K of income is wholly in the 40% tax bracket).

Jason

Hi, excellent forum! Its certainly explained the details of the tax changes to me so thanks to everyone who explained that over the last few days - even to that guy who pretended not to understand!!

i think probably best strategy is to move properties to limited company structure, but i have a question about CGT.

Mark, i think you previously mentioned this as being a problem.

I guess the issue is how the value of the asset is assessed for CGT when it is being sold/bought.

If i am effectively selling a property to my own ltd company, can i not set the value myself - for example the price i paid for it or the value of the mortgage?

Reply to the comment left by "damien " at "16/07/2015 - 12:46":

Hi Damien and welcome to Property118

We are discussing the exact point you have raised on the thread linked below
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I'm really not happy with the defeatism inherent in some recent posts. And I deliberately don't use the terminology of 'tax relief' as though something has been given to us. When I pay out tens of thousands from my bank account to mortgage providers this is the major cost of my business. If it is a cost for Housing Associations, limited companies providing housing, businesses all over the country and the world who have to take out all kinds of loans and pay interest on them, then it is a cost for me. IT IS NOT INCOME AND IT IS NOT PROFIT.