New landlord tax rules for new debt only

Reply to the comment left by "Richard Peeters" at "23/07/2015 - 23:08":

When interest rates go up your taxable profit will not change.

I do not understand why you think the treasury will collect more money if interest rates increase. The reality is they would get less.
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If you have variable rate mortgages, then the amount of interest paid (the business's major expense) increases as soon as the interest rate increases.

If the rental income stays the same, and the cost of interest has gone up (even if the principal remains unchanged), then the profit falls (first hit).

And now that the interest payments have increased, the 80% part of these payments without relief increases too (the absolute amount, not the percentage), thus increasing the tax burden (2nd hit).

As I keep trying to portray unsuccessfully, this extra tax burden will then very likely push you into a higher tax rate too (3rd hit).

Thanks everyone for your persistence in trying to clarify this for me, and I promise to reread the thread in the morning to see how I am leading m self astray in the thought process here! 😉

Reply to the comment left by "Richard Peeters" at "24/07/2015 - 00:09":

Please do re read what I have said because an increasing interest rate alone will NOT increase you tax bill.

I agree that you will be worse off when interest rates go up but ONLY as a result of paying more interest.

I repeat, your taxable profit will NOT change under the new tax system when interest rates rise.
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Reply to the comment left by "Lee Gough" at "23/07/2015 - 11:57":

I'm in agreement, this should not be allow fullstop. This is the government literally coming in and bankrupting a business, ie if your expenditure out ways your income and then the assets being worth less than you paid for them.. If they wanted to stop us in our tracks this should do it. I think this is going to have the effect of mortgage providers asking for much higher rent to interest ratio. This is because applying a 1.25:1 ratio will now be insufficient when you consider voids, maintenance, insurance, the additional tax bill etc.

I think maybe we should ask Mr Osbourne a direct quesion "when you were sitting down and planning your budget, did you intend for the very real possibility that you would in effect be bankrupting some landlords and if so, what was the thinking behind going ahead with it anyway?"

It just seems that landlords are being made scape goats. House prices will always be out of reach for some and they need to live somewhere. Bankrupt landlords and there will be less properties available and this will then have the knock on effect of rents rising. Are the government going to build enough houses to counteract this? It's said that it is unfair that landlords get tax relief on their interest but residential owners don't. Although this is true whatabout CGT which does not apply to residential owners. It seems to me that if the government are claiming that they are trying to level the playing field by removing tax relief on interest they should consider applying a relief similar to PPR to BTLs.

If they really want to help first time buyers why not remove stamp duty for them, apply tax relief on interest for say five years etc.In my opinion this has nothing to do with making housing more affordable it just another way for the government to obtain more taxes to get the country out of the mess it's in.

Reply to the comment left by "Mark Alexander" at "23/07/2015 - 23:41":

There is a lot of confusion out there at the moment...Mainly because In the policy document (and Osbornes speech.)..the" objective" talks about higher rate tax payers etc. The fact of the policy however is that it is not in in any way based on ones tax band.
BECAUSE>>>
In fact its very simple.We are allowed 100% of our interest payments as a cost deuctable on our respective tax returns..FULL STOP.
This is to go down in stages to just 20%..FULL STOP.

This applies regardless of what tax band your are in. The policy also is supposed to make the situation "fairer". As all other businesses claim all 100% of their interest finance costs....so it is in fact the exact opposite of fair..since private residential landlords are to be treated completely differently to every other business..or at least 80% differently.!!.

Surely there must be grounds for a group legal action against that fundamental unfairness.The law generally,i believe supports resdistance to very obvious cases of gross unfairness and this policy clearly does not in practice follow its own stated objectives.

Reply to the comment left by "Richard Peeters" at "24/07/2015 - 00:09":

Hi Richard

This also seems paradoxical. It is because the amount of profit that HMRC will deem you to have made remains unchanged, because interest will not be part of that calculation. Therefore an increase in finance costs will not put you in a higher tax band.

But if your interest goes up, the 20% relief goes up in line with it (subject to restrictions, see below). The deemed profit is unchanged, the tax calculated on it is unchanged, but the relief is higher. So the amount of tax that you pay would be lower.

I agree that your real profit will be lower.

Note that the relief is given to the lower of a) finance costs, b) deemed rental profit, and c) total gross income minus the personal allowance.

These factors are all taken into account in the spreadsheet. If you want to see what the effect of a change to rents, interest or other income would be, just put it in its red box. The spreadsheet will give you the answer.

Reply to the comment left by "michael fickling" at "24/07/2015 - 08:38":

Michael, you are wrong. The change results in ZERO interest costs allowable but a 20% allowance being added back in AFTER tax is calculated.

The two are NOT the same thing...please understand this.

The press doesn't help,with their incorrect reporting of the change....

E,g. The Telegraph:

"Last week the Government announced that landlords will only be able to claim tax relief on their mortgage interest payments at the basic tax rate of 20pc, rather than their marginal rate, which could be as high as 45pc."

No, he did not!

He announced that financing costs (including but not limited to interest) would no,longer be allowable costs when calculating taxable profit. Instead, a relief equal to 20% of these costs would be allowable against tax due.

If you don't understand the difference, please read and use the spreadsheet until you do.

This frankly wrong reporting in the national press is a key reason why so many landlords have shrugged and said OK, a bit more tax....when the reality is so, so different.

I am also surprised by the lack of reaction to other news that 'sneaked out' before they all trotted off to Summer recess.....

http://www.ftadviser.com/2015/07/22/mortgages/osborne-to-give-bank-directional-power-over-buy-to-let-dzIhh5QRCxHbFWXursChXL/article.html

The key part hére being....

The financial policy committee has identified buy-to-let mortages as something they wanted to have oversight over and make recommendations on.

“I agreed we would pass on oversight and give them powers to look at the buy-to-let market and make recommendations. That is in train.

“We are looking at directional powers as well. We will make an announcement in the next couple of months and it is happening this year.”

This may mean facing eligibility criteria for mortgages and remortgages for BTL that resemble MMR.

How would being stuck on an SVR combined with the tax changes make you feel?

Hi appalled landlord
Where does the figure Loss of personal tax come from? How is it made up ? Please. Paul

Reply to the comment left by "Paul Goulder" at "24/07/2015 - 13:36":

Hi Paul

Where did you find a "figure Loss of personal tax?

Reply to the comment left by "Renovate To let" at "24/07/2015 - 13:07":

Hi RTL

Thanks for posting the link to their article. It quotes Mr Osborne saying: “By reducing the tax relief available we are moving towards levelling the playing field between someone buying a house for their family’s use and someone buying it to let.”

Does “moving towards” imply that the reduction in relief is a first step towards this fallacious “levelling the playing field”, and that the next step would be to remove it altogether?