Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "michael fickling" at "31/08/2016 - 08:51":

I don't know the definitive answer, but the 'Tax Reduction' section of this document might help

http://www.taxation.co.uk/Articles/2015/09/01/333612/squeeze-buy-let

My interpretation of S24 is in line with yours. The legislation seems to aim to restrict the tax reduction to the amount of tax that would otherwise be payable. Large losses can't, therefore, be effectively carried forward as previously.

But do seek professional, qualified and insured advice, as I could very easily be totally wrong.

Reply to the comment left by "michael fickling" at "31/08/2016 - 08:51":

Hi Michael

As an accountant, I wanted to clarify with HMRC a minor discrepancy between two papers they had issued. So I sent them an example for comment. I posted their reply on this thread in March. It deals with the question of losses brought forward and with finance cost carried forward.

To take your points in order:

We will still be able to set the deemed rental profits off against losses brought forward from prior years. Indeed, Megan Shaw of HMRC wrote that we must do this.

You can see a copy of her email, posted at 22.23 on 20 March: http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-802/#comments

It is irrelevant whether or not accrued losses included finance costs.

The self-assessment form will have to be modified anyway for section 24.

Losses brought forward are not one of the 3 elements that decide whether the 20% “relief” will be limited. Losses brought forward will determine the taxable amount of rental profit for the year, which is one of the 3 elements:

“Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating the profit. In practice this tax reduction will be calculated as 20% of the lower of the:

         finance costs not deducted from income in the tax year (25% for 2017 to 2018, 50% for 2018 to 2019, 75% for 2019 to 2020 and 100% thereafter)

         profits of the property business in the tax year

         total income (excluding savings income and dividend income) that exceeds the personal allowance and blind person’s allowance in the tax year

Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year.”

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

The effect of section 24 is not that the losses brought forward will be “simply lost”. Its effect is that they will be used up in a smaller number of years, because the deemed profit will be inflated by the omission of finance costs from the calculation.

REPLY TO JOHN PIPLLMAN read this thanks for the link. Obliged to ya....A problem here is the example relates to post implementation i think...unless ive misunderstood....whereas i was really alluding to losses accrued over many years prior( sec 24) AND the fact that those figures lost in those years include various things including repairs and major works etc..not just interest and finance....and there is no differentation how those are proportioned....they just appear as prior built up losses accumlated on past tax forms..ie one box on old tax forms..How are they going to deal to that?.......if they do ignore those losses they are ignoring various accrued losses,,not just finance.. losses prior to Sec 24...both seem unfair..and would go further than apparently intended in the act as well..if pre sec 24 repairs renewals etc are to be also lost? Anyone had advice ??

Reply to the comment left by "michael fickling" at "31/08/2016 - 11:25":

Hi Michael

The total losses that you have brought forward to this tax year are combined into a single figure. It is irrelevant how they were generated. Section 24 is not going to disallow finance costs that were incurred in any year prior to 2017/2018.

Your profit for the year will be deducted from this single figure for accrued losses. If the profit is lower than your losses the difference will again be carried forward as a single figure. And this will continue each year until the losses have been used up.

Section 24 will not change the principle of setting the year’s profit off against losses brought forward from prior years. It will just change how the year’s profit will be calculated.

Reply to the comment left by "Appalled Landlord" at "31/08/2016 - 12:03":

Thats very helpful thank you "apalled landlord".. and others who have kindly responded..... I have one further question in view of the above...if finance costs have been used ( to get the 20% allowed) then does the remaining 80 % of "unused finance" cost get carried forward as a loss to be added to the accumulated loss going forward ....surely if it does then the clause is significantly diluted in its effect?

Useful clarification from people, thanks

Are the properties caseload positive now or still running at a loss (pre S24)

Reply to the comment left by "michael fickling" at "31/08/2016 - 13:38":

Hi Michael

The “relief” on finance costs will not be given by deducting 20% of them from rental income to arrive at the rental profit. It will be be given by deducting 20% of our finance costs from the tax that HMRC will calculate on our deemed rental profit.

In arriving at our deemed profit, HMRC will disallow, i.e. exclude, our finance costs.

There will be no remaining 80% to carry forward, as 100% will be disallowed.

Excess finance costs to be carried forward will only arise as follows:

HMRC will compare your finance costs with your deemed rental profit and with the figure for your total income (excluding savings income and dividend income) minus the personal allowance. You will only get the 20% “relief” applied to the lowest of these three amounts.

The amount of finance costs minus the amount that you get relief on can be carried forward and added onto the next year’s finance costs for calculating the relief.

Reply to the comment left by "Appalled Landlord" at "31/08/2016 - 17:35":

Thanks again.Those tax forms are certainly going to need quite a re jig!

Reply to the comment left by "michael fickling" at "31/08/2016 - 18:46":

Especially as they are going to need to be filled in 4 times a year and for each property separately even for those who only have a few.

Reply to the comment left by "Kathy Evans" at "31/08/2016 - 22:44":

Hi Kathy.
Can you remember when this 4 times a year tax return scenario is coming in? Also, I didn't know anything about each property having to be done separately... are you sure?