Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "shakeel ahmad" at "08/07/2015 - 22:00":

a. No change

b Your higher rate % - 20% = % to be craged on the £20,000 interest. Ie you would have to pay either 4000 or 5000 depending on your higher rate (whcih can be 40 or 45%)

c At you tax allowance + I belive around £42/44k. HMRC website can reveal the amount in seconds.

Reply to the comment left by "shakeel ahmad" at "08/07/2015 - 22:00":

The lower threshold is crossed when all income/profit from all sources exceeds £43,000.

To calculate the costs of the announcement today for 40% tax payers please see the calculator embedded into the article linked below.
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I used to get 100% tax relief on my mortgage interest payments, unless that's what I thought!! Now it is only 20% tax relief for lower rate tax payers, very confusing!

To help me understand, say for arguments sake. I Got 100k Rent per year and my mortgage interest payments were 100k per year and I had no main job, ( A full time landlord) no other income and no other expenses. How much tax would I pay?

Would be very grateful if someone could help explain?

Hi Mark,
I had used the calculator/ It calculates the tax liability purely based on the monthly interest payment in isolation. .

What is it based on ? basic tax,higher tax. I feel the scenario that I had set out is a better explanation of the variation.

Landlords can deduct costs, including mortgage interest, from their profits before they pay tax.
I cannot believe, despite the earlier reference to Spain, that the UK government would try to tax anyone on anything but an actual income .
Actual income is what you get after all allowable deductions have been made.
So this debate is confusing people.
It's this question that has to be answered first.
If I am right and this point still holds true, then what we have is a reduction in profit due to an effective increase in actual tax payable on that profit.
Clearly this impacts negatively on the business case for being a landlord.
If you have no profit, you have no tax.
If you are making a loss then it will take longer to fully utilise that loss against profits eventually earned.
Before the Budget 2015 announcement, wealthier landlords (It's irrelevant where their 40% tax threshold income is derived) received tax relief at 40% and 45% but by April 2020 this tax relief on mortgage interest payments will be restricted to 20% for all individuals.

Reply to the comment left by "Paul Shears" at "08/07/2015 - 23:47":

I made repeated attempts to correct the grammar on this comment but the web site would not accept my changes.
The question that needs to be answered first is "Is this still the case?"

The Joke is us landlords would have been better off with Labour's rent controls. Conservative is being more Labour than Labour in this regard!!

For those who have made it to page 9 - here is the official HMRC statement on this subject matter:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443277/6041_Restricting_finance_cost_relief_for_individual_landlords__3_.pdf

I will attempt to explain my understanding of the change proposed by the chancellor:

Step 1 – Determine whether you are a 20% tax payer, 40% tax payer or 45% tax payer. i.e. This only applies if you have a source of income other than your ‘property income’.

Step 2 – If you are a 20% tax payer (from income other than your ‘property income’), this change does not affect you – sleep tight. If not, read further…

Step 3 - If you are a 40% or 45% tax payer (from income other than your ‘property income’), this change will affect you.

For example:
Main Job Income = £80,000
First £10,600 is tax-free personal allowance
Next £31,785 is taxed at 20% = £6,357
Remaining £37,615 is taxed at 40% = £15,046 (this makes you a 40% tax payer)
Tax on Main Job = £21,403

Before today’s announcement:
Property Rental Income = £12,000 (£1000 rent per month)
BTL Mortgage Interest = £3,600 (£300 per month)
Property Profit = £8,400
Tax on Property Profit = £3360 (which is 40% of 12,000 minus 40% of 3600)

After today’s announcement (from tax year 2020-21):
Property Rental Income = £12,000 (£1000 rent per month)
BTL Mortgage Interest = £3,600 (£300 per month)
Property Profit = £8,400
Tax on Property Profit = £5520 (which is 40% of 12,000 minus 20% of 3600)

For tax years from 2017-18, 2018-19, 2019-20 - the above calculation will be phased (as per the HMRC document - link in my previous post above).

Hope this helps…

Ok so mortgage interest relief is to be battered. What is the position if the expense was rent out (rather than interest payments) as already mentioned sharia / islamic finace has no interest , rather rent paid to bank ....that could be a loop hole george has overlooked ...Are those rent payments 100% deductable - cant see why they shouldn't be ?