Summer Budget 2015 – Landlords Reactions

I posed a question last year but to this day it remains unanswered.

I'd appreciate if somedody could chime in and clarify.

So, here I ask again... do the new restrictions on interest mortgage relief capped at the basic tax rate apply to residential property purchases made outside the UK?

Have landlords been castrated just in the UK or is it on a global scale?

Reply to the comment left by "Aggla Moore" at "03/04/2016 - 02:01":

I don't know for sure but if you claim finance costs for residential property on your tax return I would assume you are affected too. By affected I mean screwed!

I can however say with a very high degree of certainty that if your name is Osborne and you have a wall paper business and you get a mate to create an off shore company and buy a price of land from you and develop it and make a huge profit and then dissolve the company - as far as tax is concerned - you are golden - have no worries!

So Aggla here is a site you may find of interest
http://www.deedpoll.org.uk/Overseas.html

You may have more in common than you know....George used it to become George from Gidiot.

Reply to the comment left by "Aggla Moore" at "03/04/2016 - 02:01":

This is an interesting question, Aggia. For example, if someone here with a UK BTL portfolio used equity from that portfolio to buy a property abroad (which loads of people must have done), then there could be a portion of the finance costs which although raised on property here, were used to buy property eg in France. I've got a feeling though that in that scenario it wouldn't matter what the money was used for but only that it was raised on the UK property.

I assume there are also UK mortgage lenders who will lend on foreign purchases and it might be different in that scenario. You might raise your finance here but get your rents and pay tax in another country. Hopefully someone here can clarify for you. I might have confused it even more!

Reply to the comment left by "Aggla Moore" at "03/04/2016 - 02:01":

Hi Aggla

The taxation of income from foreign property is described in: https://www.gov.uk/tax-foreign-income/paying-tax as follows: “You pay tax in the normal way on overseas property”. If you click through you will see that the normal way means how it is taxed in England and Wales.

In my opinion it would be strange if Osborne exempted foreign property from section/clause 24.

There is no mention of country in either the Finance (No. 2) Act 2015: http://www.legislation.gov.uk/ukpga/2015/33/section/24

or in its Explanatory Notes on section/clause 24 (from page 54 on): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/445521/EN_FB_2015.pdf

However, the policy paper issued by HMRC on budget day last July began:

“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.”

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

If you need confirmation I suggest you contact Megan Shaw, Product Owner – Property Income & REITs, HMRC. Her contact details are shown at the end of the above webpage, under Further advice.

Note the exception concerning property that “meets all the criteria to be a furnished holiday letting.”

Since April 2011 this has included furnished holiday letting (FHL) property in the European Economic Area (EEA) – but only because of an EU ruling. “The trouble began when the European Union ruled that the British government was wrong to restrict tax reliefs to holiday homes within the United Kingdom, rather than anywhere in the EU.” http://www.telegraph.co.uk/finance/property/international/9870349/Tax-change-hits-holiday-homeowners.html

The EEA includes Iceland, Liechtenstein and Norway: https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2015

This help sheet also gives the specific conditions for qualifying as an FHL.

If the UK leaves the EU, I think it is possible that the treatment of foreign FHL income may be changed back to what it was before April 2011, whether or not the UK stays in the EEA. If so, foreign FHL property would be treated the same as non-FHL property, and relief on the finance costs would be restricted to the basic rate.

Reply to the comment left by "Ros ." at "03/04/2016 - 09:24":

Hi Ros

“It wouldn’t matter what the money was used for” only applies to the amount of a re-mortgage that takes the loan up to the original purchase price plus any capital expenditure on it.

http://www.property118.com/can-i-claim-tax-relief-on-remortgage-interest/61467/

The interest on any borrowing above this amount is also deductible if it is used in the BTL business, but not if it is used to buy a holiday home, either in the UK or abroad. What matters is what the money is used for, not the property the loan is secured on.

Reply to the comment left by "Appalled Landlord" at "03/04/2016 - 19:26":

AL, If UK Brexit Europe, what's your opinion in regards to current case against treasury mounted by Steve Bolton and Chris Cooper, would this still stand?

Reply to the comment left by "Appalled Landlord" at "03/04/2016 - 19:51":

Re: "the amount of a re-mortgage that takes the loan up to the original purchase price plus any capital expenditure on it".
I've been trying to look into this recently and I had understood that the capital expenditure could not be included unless there was evidence that the property had been revalued by an estate agent prior to first let. Is this a grey area or can the capital expenditure definitely be included? Have other people done this?

Thanks guys and particularly much appreciated the comprehensive reply by Appalled Landlord.

It’s actually pretty clear indeed… can’t argue with the below:

“Who is likely to be affected: Individuals that receive rental income on residential property in the UK or elsewhere and incur finance costs”

“You pay tax in the normal way on overseas property”

This is just plain crazy.

I know a lot of people that have invested in their names (not through companies) in properties overseas in Italy, France, USA, Dubai, etc… they are now all screwed by the “vomited” Clause24 policy.

For example, I know personally an Italian couple, they have been resident in London for more than two decades. They run a small successful restaurant and have built a small UK portfolio of rentals too. A few years ago, through a relative that works in property development in Michigan, they found four bargain houses in the Detroit Michigan area.

If anyone is aware how the property market has been doing in that area in Michigan, then I’m not sure how one can reconcile the “level-playing-field” Clause24 policy bollocks in an area in which they have the OPPOSITE problem of London and the South East. They just don’t have a structural demand-supply imbalance.

The more one digs deeper the more it is evident that the incompetent government drew a policy that just makes no sense whatsoever!

Conversely, what about the “accidental” international Landlord? A professional foreigner from say... Paris, Munich, or Milan has a mortgaged house in his country. He/she gets a job in London and rents out the place back home before moving to London. He/she is now resident in the UK for tax purposes and must declare his foreign rental income but can no longer fully deduct all mortgage interest costs…

Why would a professional from Australia, USA, Germany move to the UK to work if he had to pay taxes on a rental income that has never been generated back in his home country?

Ditto. It's just plain crazy...

Disallowing the full deduction of mortgage interest costs must be the most anti-capitalistic and more fascist policy I’ve ever seen in my whole life….

Sharing below my email sent to David Cameron earlier today - perhaps bombarding his Inbox with similar may start to get the message across?

"Dear Mr Cameron

I write to implore you to remove George Osborne from the post of Chancellor of the Exchequer.

The latest debacle and u-turn over cuts to disability benefits is just the latest in a long line of his disastrous budget proposals, from the controversial "pasty tax" in 2012, through the aborted reduction in working tax credits in 2015.

Osborne's propensity to grab at revenue-raising or cost-reduction ideas without proper consultation or assessment of the consequences would make him a national laughing stock if the implications of his incompetence weren't so serious.

One such fiscal policy change is the Clause 24 attack on buy-to-let landlords announced in his Summer Budget 2015. This is a ticking time bomb set to turn the current housing crisis into a national disaster with the poorest tenants made homeless as landlords are forced to sell, and the least well-off landlords encumbered with fixed-term mortgages having to pay tax on money which they simply don't have, it having already been paid to their lender as interest. This will, incredibly, be the only example in the western world of an infinite rate of tax and, more incredibly, it has been introduced by a British Conservative government. It will lead to massive pressure on local authorities to house the newly homeless, landlords made bankrupt by HMRC and a crash in house prices in many parts of the UK, many of which have not yet seen prices fully recover from the 2008 crash.

I should mention here that my husband and I are professional, university graduates in our fifties. We are both lifelong supporters of the Conservative Party and live in the Tatton constituency, we therefore - much to our horror now - voted for George Osborne in the last four general elections. We have a small number of modest but comfortable buy-to-let houses, which we have refurbished and now manage ourselves, with happy long-term tenants. We could never have expected that our decision to plan for our retirement and the future financial security of our children by buying properties would lead to us become the target of an ill thought-out tax raising attack from our own MP.

Surely you will be aware of the long list of voices raised to oppose this tax? This includes: the Treasury Select Committee; the Institute of Fiscal Studies; the Council of Mortgage Lenders; the Institute of Chartered Accountants; the London School of Economics; The Telegraph; Lord Flight; Professor Michael Ball - it is inconceivable that they are all wrong and George Osborne, David Gauke and a group of Treasury officials are right.

Clause 24 was George Osborne's ill-conceived knee-jerk response to Mark Carney's warning of the risks to the economy of uncontrolled buy-to-let lending. Now that we have tighter lending criteria and the 3% SDLT levy this is more than sufficient to dampen demand for future BTL borrowing.

It is therefore time to ditch Clause 24, which penalises hard working responsible citizens for past investment decisions. More importantly it is time to ditch George Osborne for making such a complete hash of his job ever since he naively interpreted the unexpected Tory majority as giving him carte blanche to ride roughshod over people's lives and finances.

One wonders who George Osborne thought he was sneering at when he referred to "landlords" during last year's Autumn Statement speech - if only he had realised it included a huge number of former Tory supporters who will now never again vote for the Conservative Party.

What a fool - it's time for him to go.

Hi

Can somebody post his email and I will mail him