Budget 2016 – Landlord reactions

Reply to the comment left by "Jim Taliadoros" at "19/03/2016 - 20:11":

It's reallya whole different ball game and I am no corporation tax expert. There is no CGT in companies, gains are simply subject to CT any other profit. I think what you a referring to is the contingent i.e. unreliased gain hence liability. I think the level of disclosure will depend on the size of the company and the accounting rules it becomes subject to, most small trading companies do not have to disclose such provisions but a property company could well breach capital ceilings and become subject to more stringent accounting standards, and hence costs.

We aren't going to incorporate the properties but are going to split property activity via a partnership and charge the partnership a maangement fee (we self-manage anyway). Profit extraction will be by a) salary below the NI threshold and b) via pension contributions capped at the MPAA of £10000 each pa (thanks George) with 25% tax free and the rest drawn as required. The overall objective is to divide income streams and profit for flexibility in what is set to be a testing time for all taxpayers.

We already have a partnership set up which manages all properties as we manage lots of others too. Are you saying we can offset more out of that such as the pensions as this would be helpful.

Check out our situation in the telegraph buy to let section today.
The RLA put us in touch with them last week and they have ran a story today

Reply to the comment left by "S H" at "20/03/2016 - 07:17":

Assuming that question is to me SH the answer is that it depends. A partnership such as ours which merely divides the rental business is no more able to make pension contributions than a sole trader. However, it appears that your partnerhsip, and our limited company, engages in the trade of property management in respect of which pension contributions can be made (that income/profit will also becaome liable to Class ll/lV Nl whereas in the company salary becomes subject to employer and employee Class l NI but only above quite generous levels).

In my view the incorporation of properties themselves could result in too an inflexible taxation regime not withstanding the finance charge benefit (the personal holding of properties and the corporate imposition of a managment charge increases deductible expenses whilst leaving the full finance charge albeit at 20% againstvtge remainderreducing tge tax imposition. Undustributed profit in the company can be sandbagged atvultimately just 17% for some future useat a possibly more benign time.

Reply to the comment left by "S H" at "20/03/2016 - 07:35":

Here is the link:

http://www.telegraph.co.uk/investing/buy-to-let/our-17-propertieswill-lose-16000per-year/

Well done for agreeing to be profiled, S H. It is a good article, showing how you and your husband provide essential housing to the 'lower' end of the market and also makes the important point that many of us do not rely on capital gain, but rather earn or hope to earn at some point, a modest profit for doing what is a difficult and stressful job. In the future you are likely to have to look to get better-paid tenants if possible and those on benefits will have to throw themselves at the mercy of the local housing office.

A question re Clause 24. My mother in law is in a care home and we're debating whether to sell her home or let it with a deferred loan arrangement from the council. Over time, as the deferred loan grows, the rent plus pension income plus loan interest will take her income above the lower income tax threshold. So my question is whether there is any exemption for those who are in care homes, given that the will be progressively utilising the vale of her home to prevent for longer the need to use tax payers money to fund her long term care? Perhaps one of the more informed and on-the-ball accountants could look into this, as it will be of interest to many families in similar situations who would otherwise have no need to be interested n this particular tax change.

stamptaxes.budget&financebill@hmrc.gsi.gov.uk

This is the email address to refer all questions property related to HMRC, I'd email directly and ask as every solicitor and accountant has to go through these to get answers.

Just a word of warning they don't get back promptly, but if you call, the answer myself and the journalist from the telegraph got off them last week was fascicle. We read a quote out and asked for clarification.
They are the dept with the answers apparently, but said they didn't know the answer to our question as its not clear in the document.
They were going to consult and get back to us. Watch this space!

Hi SH

I sent this to telegraph we are fairly large landlords in the north west and are happy to contribute to any stories

Hi Olivia

I have just read you article about the scandalous buy to let attack by George Osborne ( can hardly day his name I am that angry )

I have approx 70 buy to let properties in the north west my business partner has 350 and has an office and over 10 permanent employees. I also have four friends who have 40 + properties

To put in simple terms clause 24 is going to be carnage as the removal of mortgage interest as a cost means tax bills will be more than profit ? How is that fair ? And ultimately it will be the tenants that pay.

I am already ear marking my larger family homes some of which I have had tenants for 10 years to be put up for sale as they have the larger mortgage interest. This is as a direct result of the ludicrous attack on our sector namely clause 24. It is worth noting I have never increased rents of any of these tenants and in some cases reduced to assist them during these difficult times.

The bulk of my portfolio is smaller ex council houses with housing benefit and eastern European workers. These houses I will keep but the rents will be raised ( just to cover the tax )which will mean the social housing tenants will not be able to afford the Increases thus they will have to look for somewhere else and I can tell you they won't find anywhere as I get the council calling me all the time asking for accommodation ? These houses will be let to Eastern Europeans who will be able to afford the increase.

I am speaking to a barrister tomorrow about incorporating my portfolio but this is going to be extremely expensive and for what ? to carry on what I do under a limited company structure to avoid Osbournes clear discrimination.

I will put it in simple terms if landords who are unaware or do nothing will probably go bankrupt very quickly imagine if myself and my partners had to do this 450 mainly vulnerable families evicted all down to that idiot in London who couldn't run a bath let alone an economy

I urge you and your paper to get behind us and and get the situation out to as many people as possible because I am not scaremongering I am telling you what will happen I seeing it with my own eyes.

The most unfair thing is it being applied retrospectively thus making our business model unviable over night. If he's hell bent in taking the sting out of buy to let why not have it on new purchases at least we know what we a getting into and can plan accordingly

Also the wider economy will be affected as I have stopped buying and refurbishing property meaning all the tradesmen I use are looking for work and asking when the next refurb is happening to which I say have a word with good old George as I am not buying anymore during this blatent attack on me and my family

Thanks
S

Could a large corporate landlord's corporation tax bill increase by 85%?

Tucked away with the budget 2016 is the business tax roadmap

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508173/business_tax_road_map_final.pdf

Clause 2.33 on page 24 of that document might be of relevance to large corporate landlords

"2.33 The UK will be introducing a Fixed Ratio Rule limiting corporation tax deductions for net interest expense to 30% of a group’s UK earnings before interest, tax, depreciation and amortisation (EBITDA). This approach is in line with the rules that exist in several other countries and international best practice addressing profit-shifting through interest. A level of 30% remains sufficient to cover the commercial interest costs arising from UK economic activity for most businesses."

AIUI (and I could very easily be wrong), that means that for every £1 EBITDA (over £2m), only 30p of interest can be deducted for corporation tax calculations.

I have cited Grainger here before and will use them as an example here again.

Assuming an interest rate of 4.6% (lifted from the Grainger annual report) I think that means that the interest costs on borrowings of £6.52 per £1 of EBITDA are tax deductible. Anything over that is not.

Grainger has £1,226.4m in interest bearing loans and borrowings, which is 12.1 x what I estimate to be EBITDA

It paid £62.3m in interest last year.

It doesn't report a clean EBITDA number, but the nearest reported number is OPBVM (operating profit before valuation movements), which is a bit like EBITDA for these purposes. That was £101.9m

If you take the £101.9m, that would mean that £30.57m of interest could be deducted. That leaves £31.73m of interest that is not deductible. At 20% tax, that would have been £6.3m of extra tax to pay. The tax charge for 2015 was £7.4m for the UK business.

***So, if my sums are right (and there is a very high likelihood that they are wrong, but I think they are in the ball park), that would be an increase in the tax bill for Grainger of 85.1%***

As I own a few shares in Grainger, I have emailed the investor relations team to ask them what the impact of this policy will be on Grainger. I don't expect a quick / detailed answer, but anything I get back, I will post here.

Reply to the comment left by "Jon Pipllman" at "20/03/2016 - 13:50":

Grainger will almost certainly get caught in the "over £2m EBITDA net"