Treasury response to Section 24 report by Dr Rosalind Beck

All the predictions and rumours in the papers are pointing out that Chancellor will predominantly be concentrating on Infrastructure, Helping families who are just about managing, Fibre Internet Connection (£1 Billion set aside for that) but there is no rumour or leakage that Chancellor will reverse Mortgage Interest Relief or abolish 3% Stamp Duty Surcharge unless he is playing cards close to his chest.

There is however seems to be good news for LTD company BTL Landlords, as Theresa May stated that, we may slash Corporate rate less than 15% despite Chancellor has already announced that he won’t slash it less than 17%. The rationale she has behind her thinking is that, she sees Donald Trump as a threat to our trade deals as Trump has already announced corporate rates less than 15%!

Reply to the comment left by "Richard Mann" at "21/11/2016 - 12:49":

Indeed. It's crazy that businesses, whether sole trader or partnership, should be taxed on a system designed for employees. Better if they were all taxed using the system for Ltd.

Reply to the comment left by "Simon Hall" at "21/11/2016 - 17:52":

Note that husband and wife have been taxed separately since 1990, so you no longer need to look at combined income.

Reply to the comment left by "Simon Hall" at "21/11/2016 - 17:52":

Note that husband and wife have been taxed separately since 1990, so you no longer need to look at combined income. So the £200k is not a relevant figure. The personal allowance is withdrawn starting at £100k at the rate of 50p per £1 of income above £100k.

Reply to the comment left by "Dr Rosalind Beck" at "17/11/2016 - 17:29":

Hello Dr Rosalind Beck

Sorry to disturb you.

I had contacted the european competition commission in regards to Clause 24 as it gives an unfair tax advantage to corporate landlords and hurts individual landlords badly.

They have come back to be after almost a year and I wanted your help in taking this application further. Please can you send me your contact details.

I have already forwarded them "The ROS Report" but I think the case is at critical point and it can help our cause.

I have sent similar emails to others (chris cooper and steve bolten) and waiting their response on this.

I can be reached at bhratkapur_bel@hotmail.com.

Thanks
Bhrat Kapur

Reply to the comment left by "bhrat Kapur" at "28/03/2017 - 13:41":

Nice work Bhrat - Good Luck all with this avenue of hope

Reply to the comment left by "Dr Rosalind Beck" at "17/11/2016 - 17:18":

There are so many blatant untruths in this rehearsed response, and the other one below from Tracy Webb, it beggars belief.
1. LLs with higher income receive more relief than those with lower income. No, those with higher costs and lower income will pay more tax under S24. Those who are genuine higher rate tax payers are already paying twice as much tax on their real income, over the threshold, as those on basic rate.
2. Of course tax relief is not available to owners. a) they are not running a business and b) MIRAS was abolished years ago, though re-introducing it would have been a much fairer and more useful way of "levelling the playing field". Why on earth would the government give tax relief to anyone to buy shares??? That is a passive investment, purely for personal speculative purposes, and provides no service or general benefit to society as a whole? Landlords are running a business supplying homes in response to an ever-increasing demand. There is no distortion here of any accepted business or taxation practices.
3) Only 1 in 5 will be affected. WRONG. If 34% of LLs are currently 40 or 45% taxpayers, they will ALL be affected to a greater or lesser degree if they have mortgages, mostly quite dramatically. That's 1 in 3 right off the bat. Of the remaining 66%, many of them will also be shifted artificially into a higher bracket, I'd guess around another third to half of them? I think we're looking at more like 50% rather than 1 in 5. Of course, the phasing in gives us time to plan. Plan what? Incorporate, sell up, increase rents or go bankrupt, making thousands of people homeless while we're at it. Any other suggestions?
4) The two examples given are rare. Aye right. Portfolio landlords may be fewer in number than "accidental" ones, or those with just a couple of properties, but they are the ones who will be hardest hit, resulting in the greatest impact on tenants, whose interests haven't even been considered it seems.
5) To claim that corporation tax relief at 20% is no more generous than S24 20% relief, displays a gobsmacking failure to grasp even the simplest principle of basic business taxation. Or is blatant sophistry. Corporates are allowed to deduct ALL their costs, including finance, before paying their 20% tax on what's left, whereas landlords are to be taxed on turnover, before deduction of their biggest cost. Yes, dividends are quite appropriately taxed, as they represent income, and of course tax is paid on sale of corporate assets, JUST AS IT IS WHEN LANDLORDS SELL THEIR PROPERTIES!
6) Holiday lets are taxed in a manner to encourage tourism! How about encouraging the provision of housing for the workforce and the general population? Is that not at least as important as tourism? And don't get me started on the "stringent conditions" required for holiday lets. Have they any idea of the amount of legislation we have to comply with now?
7) If they can't see the comparison with the Irish situation, and the consequences for the sector, and continue to repeat the mantra about levelling the playing field and tax "reliefs", they must just be too thick to understand it so no point in going over it again. It is worrying though that such people hold responsible positions in the Treasury.
8) Other factors also influence rental prices. Yes, they do. Supply and demand, location, property standard, ability to pay, availability of Housing Benefit, Brexit, and maybe a few more. However, my rents have been virtually unchanged since 2006, and I never increased rent on a sitting tenant. If I could, I'd try for a higher rent when re-advertising, but never by much, and often had to reduce it again to attract interest. Rents were set by what tenants were prepared to pay, and there were enough properties around that they could pick and choose according to their own criteria. Most prospective tenants would tell me my flats were some of the best they had seen, but they still might pick another because of the location or some other reason. However, something strange is happening now. Last year one of my flats vacated, and I was amazed to discover that others in the development were being advertised at around £700 ( had been around 550-595 for ten years ). We advertised at £695 and got loads of enquiries and had it let in no time. Another tenant has just given notice, and a perusal of current comparables reveals they are now being snapped up at £795. I really can't conceive of any other reason for these sudden and dramatic price increases, than the fact that there must be a reducing supply of properties available. I can't think of any other reason for that than Clause 24. Go figure.

Those "lucky" enough to have tax-deductible buy-to-let loss brought forwards will notice for the first time when they do their 2017-18 tax return that these losses are starting to disappear at a fast rate.
The reason for this is that part of the interest is not included in calculating the rental profit, and the losses must be used in full against the rental profit. By the time the 2021 tax return is done two and a half years of interest will have soaked up the tax losses through the operation of section 24 (25% + 50% + 75% + 100%). There will not be any 20% tax credit as this cannot be used against non-buy-to-let income.
If you were hoping these tax losses were worth 20% of the brought forward amount. The effect of section 24 will be to lose 20% x 250% of a year's interest - that is half a year's interest in money terms. In other words the value of the tax losses has been reduced by half a year of mortgage interest.
One rather roundabout way to mitigate this is to have a Ltd Co which charges a management fee to the property activity. The Ltd Co then puts the funds into a SIPP to the benefit of the property owner. This can be difficult if the owner relies on the property cash flow for living.