Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Ewan Murray" at "17/07/2015 - 17:24":

Guys, you've lost me. By all means drop me an email - mark@property118.com
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In the July the 8th Policy Paper "Restricting finance cost relief for individual landlords" (http://bit.ly/1KaKyrj) there is something else, equally daunting, that so far has not been mentioned....

At the beginning it reads:

"Who is likely to be affected

Individuals that receive rental income on residential property in the UK or elsewhere and incur finance costs (such as mortgage interest), excluding where the property meets all the criteria to be a furnished holiday letting."

Does that ELSEWHERE mean that finance cost will be deductible at basic tax rate wherever in the world the properties are purchased, not just in the UK?

So, will all higher rate taxpayers resident in the UK that own rental investments abroad get punished by this ill-conceived confiscatory tax regime?

It appears that unless one owns a furnished holiday letting, then yes.

So, renting residential propeprty in Milan, Dubai, HK, SIngapore, New York...or ELSEWHERE..(like back in one's own home country).. will be taxed on 80% of the foreign mortgage too as it will be in the UK!?

Viceversa, will all foreigners who own residential investment properties in their own countries that become resident in the UK spending a few years here working for some corporation at higher rate salary, will they become liable for income tax on 80% of their foreign mortgage too?

Have we been castrated on a global scale?

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

Hi Simon

We want to see what the effect of the rule change would be on today’s figures.

Can you confirm that if you had used the current 20% threshold in the calculation for 2020/21, the tax would have been higher by £5,625 x 45%, or £2,531?

So the tax payable would be £40,258, which is 56.1% of his real income, up from 25.2% under today’s rules?

Another point to make is that
1. We are not being treated like a limited company, a Housing Association or any other business.
2. We are also not being treated like any other self-employed business person.
So, it's like a refusal to believe that what we do constitutes a business, whilst acknowledging that if it is not in our personal names, it is a business.
3. BUT, we are expected to pay capital gains tax when we sell, so at that point it becomes a business again. Owner-occupiers, including the 'first time buyers' on the other hand do not have to pay CGT when selling the residential home.
So, the Government is trying to screw us all ways by changing the definition of who we are and what we do.
It is a proposal (I'm not going to talk about it like it's a fait accompli; because we have to believe we can overturn this) exclusively designed for private landlords - not any other private individual or business person or business...
Also: I think some research is needed - or we need to find research which has already be done - regarding why fewer FTBs are buying. Not far from me, houses go for £50,000. I can't see why people on average wages can't afford these houses - and we have bought this type of house; with low deposits, just as FTBs could. According to my own personal experience, I was able to buy my first house ( I was a first time buyer too! as we all have been) because I saved from my wages and was really careful early on. I built up my BTL business the same way. People who earned as much as me or more chose to spend their money on themselves and not on buying a house or houses. That was the real reason - they didn't save. Perhaps the IFS will know more about this....

Reply to the comment left by "Simon Lever" at "14/07/2015 - 16:55":

Still OT, but no more employer's NI holiday for sole directors without employees (no one seems to be sure about spouse as employee or director). So JT does have to pay his employer's Ni and he can no longer claim travel expenses to his clients if he is supervised, controlled or directed, and direction means the client telling him what they want, so he is screwed all ways.

Reply to the comment left by "Aggla Moore" at "17/07/2015 - 18:03":

Hi Aggla

The change does not mean that we will pay tax on 80% of the interest.

The interest will not deducted from the rents received, so the rental profit will appear to be that much higher, by 100% of the interest. This higher profit is added to all your other income, then the tax is calculated by proceeding through the various tax bands.

Then finally 20% of the interest is given as a relief and deducted from the tax that was calculated, and you then owe HMRC the remainder.

So tax is calculated on the amount of the interest at up to 40% (or 45% if your total income exceeds £150,000), then 20% of the interest is deducted. The effect is that you pay up to 25% of the interest amount in extra tax.

I was suspicious of a new profile just coming here, not to make any contribution, but rather to just have an ignorant pop at LLs. Google (and click through a picture too). Perhaps someone got their secretary to join the site for the one comment.

Reply to the comment left by "Aggla Moore" at "17/07/2015 - 18:03":

Hi Aggla

Elsewhere can only mean everywhere else.

As I understand it, property is first taxed by the state in which it is situated. If it is owned by someone who is tax resident in the UK then he or she would declare the income here as well.

Tax would be calculated here, presumably using the new treatment of finance costs.

The tax already paid to the first state would be deducted if there is a double taxation agreement in place.

.If you are not tax resident in the UK in 2017 then the change would not affect you.

You need to get the advice of a practising tax adviser.

Following Kathleen's excellent idea to contact the IFS, I have done so. I have sent the following email and copied my letter to George Osborne below the email. It would be good if others could follow suit and send letters to the IFS as well. as that will be more effective - perhaps making some different/additional points to the ones I have made.

To whom it may concern

As a landlord, I was very pleased to see the comments made by the IFS in its analysis of the summer Budget. The fact that the IFS is a highly respected independent body, made the contribution all the more valuable to us landlords who increasingly feel under siege.
I am a member of a property forum called Property118 and we are all trying to work out how we can challenge the abolition of our right to put our finance costs as an expense in running our business (obviously, many of us pay out a massive amount of mortgage interest on the houses we rent out and established our businesses, safe in the knowledge - it never could have crossed our minds otherwise - that we could declare these costs).

It appears that the Government is aiming to set a dangerous precedent and change a central premise of the tax system, as far as I can see (I'm not a financial expert, but it's not complicated). The idea is that private landlords (not other businesses, not Housing Associations, not limited companies that do the same job as us, or indeed any other self-employed individuals) alone will be liable to be taxed on income that we don't have. As I am trying to lobby as many people and organisations as I can, I hope you can bear with me and read the letter that I have written to the Chancellor, which I am pasting below as it encapsulates many of our concerns and arguments. I would really appreciate it if the IFS could assist us further with this astonishing development that is likely to be the ruin of many of us - perhaps if you could use your contacts and influence in our cause? Naturally, I know you are impartial and that is what is needed here, to combat the extreme partiality of the Government proposal.
Thanks so much for your time.

Reply to the comment left by "Aggla Moore" at "17/07/2015 - 18:03":

Hi Aggla

You raise an interesting point about foreigners renting out their homes abroad but being tax resident in the UK, presumably as tenants.

Will we see a flight of foreign talent by March 2017?

If so, will that have an effect on rental demand in the UK?