BTL Tax rules post 2020 - am i on the right track?

[ATG]

And that's the crux of why it is such a ste investment and such a bad thing for the country that so many have piled in.

As the last couple of posters have said, BTL is often/usually a geared punt on the property market going up.

Joe public is pretty much excluded from any other type of geared speculation like this unless they choose to invest in a hedge fund or sign a load of risk warnings and start trading options or futures.

[Paul O]

I didn't think this had been passed. Fek!!

So, I've got a property which is currently wipes its face financially.

I offset the income from the property against the interest charged by the mortgage company which means I have zero tax to pay, as no profit.

Can anyone confirm -- Is this 2020 change saying that I would have to pay tax on the income, as the offset rules no longer apply?

If so, I'll be selling up in a couple of years.

[BoRED S2upid]

Paul O said:

I didn't think this had been passed. Fek!!

So, I've got a property which is currently wipes its face financially.

I offset the income from the property against the interest charged by the mortgage company which means I have zero tax to pay, as no profit.

Can anyone confirm -- Is this 2020 change saying that I would have to pay tax on the income, as the offset rules no longer apply?

If so, I'll be selling up in a couple of years.

Correct. And if your not making any profit at the moment your not doing it right. What happens if the tenant doesn't pay for 3 months and the boiler needs replacing? Your going to be digging deep to pay the interest on the mortgage yourself!

[Mr Noble]

Paul O said:

I didn't think this had been passed. Fek!!

So, I've got a property which is currently wipes its face financially.

I offset the income from the property against the interest charged by the mortgage company which means I have zero tax to pay, as no profit.

Can anyone confirm -- Is this 2020 change saying that I would have to pay tax on the income, as the offset rules no longer apply?

If so, I'll be selling up in a couple of years.

Sorry to say that it's exactly you whom the chancellor is targeting. Those who are using BTL mainly to gain as much 40% tax offset as possible.

[98elise]

ATG said:

And that's the crux of why it is such a ste investment and such a bad thing for the country that so many have piled in.

As the last couple of posters have said, BTL is often/usually a geared punt on the property market going up.

Joe public is pretty much excluded from any other type of geared speculation like this unless they choose to invest in a hedge fund or sign a load of risk warnings and start trading options or futures.

I disagree.

I have 4 BTL's all at around 7% yield, 75% LTV.

That give me a gross return on my cash invested of about 14%, or about 12% after costs. That about 14k per year, or about 50-60k in total.

I don't really consider capital gains as I don't intend to sell, however I bought them for an average of around 120k, and they are currently worth around 180-200k. Lets call that a 250k gain.

In total my 120k (ish) investment in 5 years has grown by around 300k.

I wouldn't call that st.

Also just to correct you about leveraged investments. Any one can spread bet or do CFD's on the stock market of they want to get into leveraged investments.

[jdw1234]

98elise said:

ATG said:

And that's the crux of why it is such a ste investment and such a bad thing for the country that so many have piled in.

As the last couple of posters have said, BTL is often/usually a geared punt on the property market going up.

Joe public is pretty much excluded from any other type of geared speculation like this unless they choose to invest in a hedge fund or sign a load of risk warnings and start trading options or futures.

I disagree.

I have 4 BTL's all at around 7% yield, 75% LTV.

That give me a gross return on my cash invested of about 14%, or about 12% after costs. That about 14k per year, or about 50-60k in total.

I don't really consider capital gains as I don't intend to sell, however I bought them for an average of around 120k, and they are currently worth around 180-200k. Lets call that a 250k gain.

In total my 120k (ish) investment in 5 years has grown by around 300k.

I wouldn't call that st.

Also just to correct you about leveraged investments. Any one can spread bet or do CFD's on the stock market of they want to get into leveraged investments.

2 things worth considering (I am sure you already have, but might help someone else).

1). The "on paper" value may be impacted by the new tax changes.
2). If you consider selling, you need to take into account un crystallised CGT liabilities (you may have spent the equity uplift on buying additional properties without putting any aside for CGT).

[98elise]

jdw1234 said:

98elise said:

ATG said:

And that's the crux of why it is such a ste investment and such a bad thing for the country that so many have piled in.

As the last couple of posters have said, BTL is often/usually a geared punt on the property market going up.

Joe public is pretty much excluded from any other type of geared speculation like this unless they choose to invest in a hedge fund or sign a load of risk warnings and start trading options or futures.

I disagree.

I have 4 BTL's all at around 7% yield, 75% LTV.

That give me a gross return on my cash invested of about 14%, or about 12% after costs. That about 14k per year, or about 50-60k in total.

I don't really consider capital gains as I don't intend to sell, however I bought them for an average of around 120k, and they are currently worth around 180-200k. Lets call that a 250k gain.

In total my 120k (ish) investment in 5 years has grown by around 300k.

I wouldn't call that st.

Also just to correct you about leveraged investments. Any one can spread bet or do CFD's on the stock market of they want to get into leveraged investments.

2 things worth considering (I am sure you already have, but might help someone else).

1). The "on paper" value may be impacted by the new tax changes.
2). If you consider selling, you need to take into account un crystallised CGT liabilities (you may have spent the equity uplift on buying additional properties without putting any aside for CGT).

In my case I don't intend to sell, and I'm not releasing equity. The aim is to pay them off then use them as retirement income.

[Paul O]

Mr Noble said:

Sorry to say that it's exactly you whom the chancellor is targeting. Those who are using BTL mainly to gain as much 40% tax offset as possible.

Fek that. I'll double check what it means with my accountant from a tax perspective, but if I've got to actually pay for someone to live in a property which has received zero capital growth in seven years, then it'll go on the market. Taking a risk for no reward AND paying for the privilige? Errm, no.

[superlightr]

why has it had £0 growth over 7 years? Where did you buy? why?

In 7 years we bought a 2 bed house at £207500 and next door sold at £263000 recently. (We let both out.) with £950 rent.

[Paul O]

superlightr said:

why has it had £0 growth over 7 years? Where did you buy? why?

In 7 years we bought a 2 bed house at £207500 and next door sold at £263000. (We let both out.) with £950 rent.

Long story, but briefly... its a flat I used to live in, moved out to live with the Mrs and rented it out. Then the market crashed, wiped out £40k from the value. Then the local council agreed huge amounts of building in the area - literally hundreds of flats have shot up all around it, destroying the supply/demand market. It used to be a really good area to buy and pretty hard to buy a place at reasonable cost with parking. Now, you are spoilt for choice. In about 11 years, its worth less than when I bought it - and I didn't buy at the height of the boom either.

Need to sack it off really, should have binned it years ago, just a thorn in my side all the time.

Sorry OP if I'm deraining your post.

[oop north]

Mr Noble said:

Sorry to say that it's exactly you whom the chancellor is targeting. Those who are using BTL mainly to gain as much 40% tax offset as possible.

Do you seriously believe that higher rate taxpayers only go into BTL to offset their higher rate tax against interest expense? really? I find it hard to believe that people really think that

People go into BTL to make a profit - that profit should be calculated with the same rules for income and expense - if you borrow to buy property, then there are already restrictions based on the expense being wholly, exclusively and necessarily incurred for business purposes. He's now thrown that away and separated business expenses into good and bad expenses - bad expenses being interest expense for one variety of person - sole trader / partnership BTL - and then e's punishing bad expenses.

That approach is no better than Corbyn's idea to stop companies get capital allowances because that's a company subsidy. No, it ruddy well isn't, it's a totally valid business expense...

If BTL needs to be controlled, do it properly not by stiffing a certain part of the population.

I was on a tax course laat week and the presented said he had written to David Gauke (I think that was who) alleging a human rights issue - cannot remember the grounds. the response said it wasn't a problem because it only affected 20% of private landlords. What sort of proportion of humans are allowed to have rights then!!!?

PS I don't have buy to let so it doesn't affect me but it stinks that Osborn can decide that some expenses should be ignored...

[98elise]

oop north said:

Mr Noble said:

Sorry to say that it's exactly you whom the chancellor is targeting. Those who are using BTL mainly to gain as much 40% tax offset as possible.

Do you seriously believe that higher rate taxpayers only go into BTL to offset their higher rate tax against interest expense? really? I find it hard to believe that people really think that

Agreed, I'm not sure the OP understands what is being offset, its not a way of avoiding 40% tax. Under current rules 40% is due on any profit. Under the new rules 40% tax will be due on more than the profit, in essense its a much higher rate of tax on the profit.

[Ozzie Osmond]

oop north said:

I don't have buy to let so it doesn't affect me but it stinks that Osborn can decide that some expenses should be ignored...

1. If you sell your house to someone who wants to live in it they get no tax relief.
2. If you sell your house to someone who DOESN'T want to live in it they get full tax relief. How is that fair?

"Because it's a business". I disagree. A massive amount of BTL activity is "tax relieved punt on property" and nothing to do with being a professional landlord. If people are being pushed into negative territory by the tax change then IMO it's because they never started out with a sensible business model. As and when interest rates start to rise it will become even more uncomfortable.

[rufusgti]

superlightr said:

why has it had £0 growth over 7 years? Where did you buy? why?

In 7 years we bought a 2 bed house at £207500 and next door sold at £263000 recently. (We let both out.) with £950 rent.

Because not all property has recovered from the dip. I purchased my first property in 2007 right before the crash. West Wales didn't see a quick reduction in prices. For whatever reason there has been a vey long slow drawn out crash. My house is worth 25% less than I payed now with absolutely zero signs of recovery. It's incredible what can be picked up in the area for the money. And this is a very pleasant and touristy seaside town.

[98elise]

Ozzie Osmond said:

oop north said:

I don't have buy to let so it doesn't affect me but it stinks that Osborn can decide that some expenses should be ignored...

1. If you sell your house to someone who wants to live in it they get no tax relief.
2. If you sell your house to someone who DOESN'T want to live in it they get full tax relief. How is that fair?

"Because it's a business". I disagree. A massive amount of BTL activity is "tax relieved punt on property" and nothing to do with being a professional landlord. If people are being pushed into negative territory by the tax change then IMO it's because they never started out with a sensible business model. As and when interest rates start to rise it will become even more uncomfortable.

If the person in scenario 1 lets a room then its entirely free of tax up to 4k, and will soon be 7.5k. How is that not getting relief?

[oop north]

S

Ozzie Osmond said:

oop north said:

I don't have buy to let so it doesn't affect me but it stinks that Osborn can decide that some expenses should be ignored...

1. If you sell your house to someone who wants to live in it they get no tax relief.
2. If you sell your house to someone who DOESN'T want to live in it they get full tax relief. How is that fair?

"Because it's a business". I disagree. A massive amount of BTL activity is "tax relieved punt on property" and nothing to do with being a professional landlord. If people are being pushed into negative territory by the tax change then IMO it's because they never started out with a sensible business model. As and when interest rates start to rise it will become even more uncomfortable.

I have absolutely no idea what you mean by your numbered points - they don't make any sense to me. If you do buy to let you get taxed on rental income, taxed on capital gains and should get tax relief on any expenses, including interest - if the income is taxed as if it's a business then the expenses should be the same. If you buy privately, you don't pay tax on capital gains, have no rental income to be taxed and therefore should not get tax relief on the interest. It's no good looking only at tax relief on the interest and saying that is unfair without looking at what happens to related transactions

I agree the business model is crap (one reason I haven't done it myself) and if/when interest rates go up many btl landlords will be properly stuffed. As will many homeowners. (The difference being that osborne's changes unfairly (imho) attack btl.) I can remember when rates were over 10%, though there doesn't seem to be much prospect of that happening in the foreseeable

I have remembered what the human rights angle was - charging people a tax rate of more than 100% of income

[Ozzie Osmond]

98elise said:

If the person in scenario 1 lets a room then its entirely free of tax up to 4k, and will soon be 7.5k. How is that not getting relief?

Sounds as though you've solved the BTL complaint against Osborn - just move in with your tenant!

[Ozzie Osmond]

oop north said:

I have absolutely no idea what you mean by your numbered points - they don't make any sense to me.

Let me explain.

When a house is for sale there are two possible buyers - (i) an owner/occupier, and (ii)A BTL landlord. One group OF BUYERS has been getting massive tax relief which enabled them to overpay for houses relative to the owner/occupiers. In other words, the market was (and still is to a lesser extent) distorted away from owner/occupiers.

[PurpleMoonlight]

oop north said:

I have remembered what the human rights angle was - charging people a tax rate of more than 100% of income

But that is not the case.

They are restricting the allowable expenses which is something completely different.

[Mr Noble]

oop north said:

Mr Noble said:

Sorry to say that it's exactly you whom the chancellor is targeting. Those who are using BTL mainly to gain as much 40% tax offset as possible.

Do you seriously believe that higher rate taxpayers only go into BTL to offset their higher rate tax against interest expense? really? I find it hard to believe that people really think that

No......I said that Osbourne has decided to target those who do. Those who use BTL to gain 40% tax shielding as a big benefit of the whole BTL business model have been targeted. I imagine he realises that if people gear their BTL investments at a much lower level (due to this change) then there will be far less properties bought by BTL investors and the prices will stabilise, helping 1st time buyers. It's a clever, if not popular move and one that's been coming for a while, just as it did with our primary residences last millennium.

Thats is all.