Death of buy-to-let: landlords wake up to Osborne's 150pc ta
Discussion
phib said:
Great explanation, thanks.
How would the same thing work with LTD company ?
Thanks in advance
Phib
Phib - My understanding is the interest expense would be tax deductible. Covered in pt 3 in article below. How would the same thing work with LTD company ?
Thanks in advance
Phib
http://www.telegraph.co.uk/finance/personalfinance...
bigunit00 said:
Here is a worked example assuming you, the landlord, pay 40pc tax.
NOW
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.
2020
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.
Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.
You will have to pay £5,000 tax in this scenario, so you make no profit at all.
But how many Landlords pay 40%?NOW
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.
2020
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.
Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.
You will have to pay £5,000 tax in this scenario, so you make no profit at all.
When I hit the upper tax bracket all our investments went into my Wifes name (whp pays basic rate)
Yes, I do trust my Wife
Sir Bagalot said:
But how many Landlords pay 40%?
When I hit the upper tax bracket all our investments went into my Wifes name (whp pays basic rate)
Yes, I do trust my Wife
The majority I would expect. When I hit the upper tax bracket all our investments went into my Wifes name (whp pays basic rate)
Yes, I do trust my Wife
Changing to your wife's name surely will only work if there is no mortgage or she can support getting the mortgage.
bigunit00 said:
So you don't think being allowed to deduct interest expense for a mortgage on the property is fair/reasonable?
Correct. It makes no sense for landlords to get a tax deduction for loan interest on residential property when home owners don't get a tax deduction for loan interest on residential property. Many years ago the tax deduction for home owners was removed - the deduction for landlords needs to follow suit and the Chancellor has taken a step in the right direction.
Ozzie Osmond said:
Correct.
It makes no sense for landlords to get a tax deduction for loan interest on residential property when home owners don't get a tax deduction for loan interest on residential property. Many years ago the tax deduction for home owners was removed - the deduction for landlords needs to follow suit and the Chancellor has taken a step in the right direction.
Primary residence you don't get the deduction for loan interest. Fine - totally agree. But you also don't pay capital gains tax on any profits made between purchase price and sale price and it isn't technically an "asset" as it derives no income (unlike a btl). Btl you do get hit on any capital gains and there is significant risks involved as well. I don't see why this expense shouldn't be tax deductible just like it would be for a business with the same type of expense or if the btl was incorporated into a ltd company. Why should a primary residence and a btl be treated the same from a tax perspective? It makes no sense for landlords to get a tax deduction for loan interest on residential property when home owners don't get a tax deduction for loan interest on residential property. Many years ago the tax deduction for home owners was removed - the deduction for landlords needs to follow suit and the Chancellor has taken a step in the right direction.
Maybe on reflection this isn't so bad after all. Should ease the spread of 'slum landlords' who put down a minimum deposit on less than ideal properties then cram them full of deadbeats turning nice locations into no go areas that the taxpayer has to pay for, whilst proudly proclaiming that they 'own' three, six, ten properties, when in reality they own hardly FA !!
Edited by daytona365 on Saturday 22 August 16:19
daytona365 said:
Maybe on reflection this isn't so bad after all. Should ease the spread of 'slum landlords' who put down a minimum deposit on less than ideal properties then cram them full of deadbeats turning nice locations into no go areas that the taxpayer has to pay for, whilst proudly proclaiming that they 'own' three, six, ten properties, when in reality they own hardly FA !!
Current market you need minimum 25% deposit to get a btl mortgage. Even on a modest purchase its still a considerable sum up front usually that's required. Edited by daytona365 on Saturday 22 August 16:19
bigunit00 said:
Here is a worked example assuming you, the landlord, pay 40pc tax.
NOW
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.
2020
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.
Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.
You will have to pay £5,000 tax in this scenario, so you make no profit at all.
A good example, and the simple conclusion is that it is a bad business model working on a very risky set of figures and now people might be caught out...NOW
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.
2020
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.
Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.
You will have to pay £5,000 tax in this scenario, so you make no profit at all.
so Landlord B bought a house for cash with no mortgage, they are already paying tax on that £20,000
the difference was simply that Landlord A was over leveraged, whether one or more BTL properties, he had more than he could really afford
I can't see this stopping the more solid one or two house owning landlords with a stable small business - but it might hit hard at those who kept on 'buying' houses to become a Landlord with 20 / 30 / 40 houses (all in fact owned by the bank!) - is that necessarily a bad thing - not sure it is...
akirk said:
A good example, and the simple conclusion is that it is a bad business model working on a very risky set of figures and now people might be caught out...
so Landlord B bought a house for cash with no mortgage, they are already paying tax on that £20,000
the difference was simply that Landlord A was over leveraged, whether one or more BTL properties, he had more than he could really afford
I can't see this stopping the more solid one or two house owning landlords with a stable small business - but it might hit hard at those who kept on 'buying' houses to become a Landlord with 20 / 30 / 40 houses (all in fact owned by the bank!) - is that necessarily a bad thing - not sure it is...
Yes that's right but as they is currently tax relief on the interest of the mortgage on the BTL property most do carry a mortgage of some amount of exploit this, even if you don't need to have a mortgage you still would and invest that money elsewhere perhaps in another property so Landlord B bought a house for cash with no mortgage, they are already paying tax on that £20,000
the difference was simply that Landlord A was over leveraged, whether one or more BTL properties, he had more than he could really afford
I can't see this stopping the more solid one or two house owning landlords with a stable small business - but it might hit hard at those who kept on 'buying' houses to become a Landlord with 20 / 30 / 40 houses (all in fact owned by the bank!) - is that necessarily a bad thing - not sure it is...
mph1977 said:
liner33 said:
Helped by the lack of council houses as well
the housing issues created by B|TL are ina different sector of the market than the issues over the mis use of social housing She can barely afford to rent a 1 bed flat and has no income left to save for a deposit. We are currently renting to her for under the market rate as she has been a good tenant for many years. If renting in this scenario becomes unprofitable then we are we would be better off to rent the property at the market rate pushing it out of her budget and she would be forced into a house share or suchlike
IF there was social housing available she could rent that and perhaps save for a deposit for her own home
liner33 said:
akirk said:
A good example, and the simple conclusion is that it is a bad business model working on a very risky set of figures and now people might be caught out...
so Landlord B bought a house for cash with no mortgage, they are already paying tax on that £20,000
the difference was simply that Landlord A was over leveraged, whether one or more BTL properties, he had more than he could really afford
I can't see this stopping the more solid one or two house owning landlords with a stable small business - but it might hit hard at those who kept on 'buying' houses to become a Landlord with 20 / 30 / 40 houses (all in fact owned by the bank!) - is that necessarily a bad thing - not sure it is...
Yes that's right but as they is currently tax relief on the interest of the mortgage on the BTL property most do carry a mortgage of some amount of exploit this, even if you don't need to have a mortgage you still would and invest that money elsewhere perhaps in another property so Landlord B bought a house for cash with no mortgage, they are already paying tax on that £20,000
the difference was simply that Landlord A was over leveraged, whether one or more BTL properties, he had more than he could really afford
I can't see this stopping the more solid one or two house owning landlords with a stable small business - but it might hit hard at those who kept on 'buying' houses to become a Landlord with 20 / 30 / 40 houses (all in fact owned by the bank!) - is that necessarily a bad thing - not sure it is...
probably still a difference between that and over-stretching...n
Car Talk? You're in the wrong place..
bigunit00 said:
valiant said:
I have £10k to spend on a small hatchback for the wife and I don't know what to get.
You should be banned from ph for this statement alone. You telling me you can't search the hundreds of other threads asking this same question Gassing Station | Homes, Gardens and DIY | Top of Page | What's New | My Stuff