150% tax for BTL investors?!?!?!?
Discussion
swerni said:
I love it how the landlords in that article portrait as altruistic pillars of society who rent out for the greater good of the tenants.
One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change
What a load of b
ks.
They should at least be honest, it's all about profit. ( not that there's anything wrong with that)
Of course it's all about profit - that's what business (generally!) is about, and it certainly is for me. However, it is still a business and is madness that the changes were even proposed let alone are going to be implemented as the interest payable is a genuine business expense!One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change
What a load of b
ks.They should at least be honest, it's all about profit. ( not that there's anything wrong with that)
The Moose said:
swerni said:
I love it how the landlords in that article portrait as altruistic pillars of society who rent out for the greater good of the tenants.
One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change
What a load of bks.
They should at least be honest, it's all about profit. ( not that there's anything wrong with that)
Of course it's all about profit - that's what business (generally!) is about, and it certainly is for me. However, it is still a business and is madness that the changes were even proposed let alone are going to be implemented as the interest payable is a genuine business expense!One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change
What a load of b
ks.They should at least be honest, it's all about profit. ( not that there's anything wrong with that)
If I was a cynic I would say that the chancellor is hoping for a windfall from capital gains towards the end of his time in government which dovetails nicely with the implementation of the removal of the allowance plus an increase in mortgage rates. It's almost like he trying to get himself re-elected.
The UK tax system has ALWAYS had a different approach to how income is taxed depending on whether the income is derived from a business activity or a job (Earned Income) or from the purchase of an asset that generates income (Investment Income).
On the whole, the taxation of investment income has been less aggressive than the taxation of earmned income. Indeed, investment income is completely exempt from ANY National Insurance charges.
This more generous treatment of investment income for tax and NI purposes has been the cornerstone of a whole tax avoidance industry. It has been a driver behind the UK's obsession with owning properties and has encouraged vast investment in personal buy to lets.
I actually think that far too much tax relief has been aimed at the property market and that this has dreadfully skewed our economy.
On the whole, the taxation of investment income has been less aggressive than the taxation of earmned income. Indeed, investment income is completely exempt from ANY National Insurance charges.
This more generous treatment of investment income for tax and NI purposes has been the cornerstone of a whole tax avoidance industry. It has been a driver behind the UK's obsession with owning properties and has encouraged vast investment in personal buy to lets.
I actually think that far too much tax relief has been aimed at the property market and that this has dreadfully skewed our economy.
swerni said:
I love it how the landlords in that article portrait as altruistic pillars of society who rent out for the greater good of the tenants.
One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change
What a load of bks.
They should at least be honest, it's all about profit. ( not that there's anything wrong with that)
Its a business/investment so of course the main driver is profit. My BTL's are all let at below markef rate, but thats because I want to attract and hold onto decent tenants. One landlord described how a property currently let to a single mother of four, who is on benefits, will “not wash its face” once the tax starts to bite. If he converted the property into two units he could increase the current rent to cover the tax. The council would have to rehouse the family, he said, “and there is already an acute shortage of housing in that area”.
Another landlord described a £110,000 property, on which there is a £68,000 mortgage, let to an elderly couple at “about two thirds of the going market rent”. It generates an annual £1,100 profit, which would fall to £370 after the tax change
What a load of b
ks.They should at least be honest, it's all about profit. ( not that there's anything wrong with that)
They are all in a reasonable area and easy to let, but it suits me to keep the rent low. I let them at £650 per month based on a market rent of £700.
I've just had one become vacant and the agent said it would rent for £750-800. I advertised it at £750 and the first person through the door took it.
To cover the increased tax costs I will need to raise he other properties rents to similar levels. Its not something I want to do, but as ever the consumer ends up paying for increased costs.
Eric Mc said:
The UK tax system has ALWAYS had a different approach to how income is taxed depending on whether the income is derived from a business activity or a job (Earned Income) or from the purchase of an asset that generates income (Investment Income).
On the whole, the taxation of investment income has been less aggressive than the taxation of earmned income. Indeed, investment income is completely exempt from ANY National Insurance charges.
This more generous treatment of investment income for tax and NI purposes has been the cornerstone of a whole tax avoidance industry. It has been a driver behind the UK's obsession with owning properties and has encouraged vast investment in personal buy to lets.
I actually think that far too much tax relief has been aimed at the property market and that this has dreadfully skewed our economy.
Genuine question, would the same investment income be taxed in the same way if the properties and mortgages were operated through a limited company? I was under the impression that interest on such loans would still be treated as a deductable expense for a limited company.On the whole, the taxation of investment income has been less aggressive than the taxation of earmned income. Indeed, investment income is completely exempt from ANY National Insurance charges.
This more generous treatment of investment income for tax and NI purposes has been the cornerstone of a whole tax avoidance industry. It has been a driver behind the UK's obsession with owning properties and has encouraged vast investment in personal buy to lets.
I actually think that far too much tax relief has been aimed at the property market and that this has dreadfully skewed our economy.
Good question. The principles of Corporation Tax (the tax limited companies pay) follow quite closely the principles that apply to Income Tax - the main difference is that companies pay their tax using Corporation Tax thresholds and rates.
There are two aspects to the new restrictions of interest on property loans - one is a restriction to basic Rate Income Tax Bands for individuals and the other is an actual cut in the amount of interest that can be offset against profits.
Since limited companies are virtually now at a point where there are no separate Corporation Tax bands, this means that element one of the interest claim restriction will not apply to limited companies
Element two (the actual cut in the allowable interest amount) SHOULD apply to limited companies. I'm not altogether sure about this as I haven't seen the details of the legislation in as much as how it applies to limited companies.
There are two aspects to the new restrictions of interest on property loans - one is a restriction to basic Rate Income Tax Bands for individuals and the other is an actual cut in the amount of interest that can be offset against profits.
Since limited companies are virtually now at a point where there are no separate Corporation Tax bands, this means that element one of the interest claim restriction will not apply to limited companies
Element two (the actual cut in the allowable interest amount) SHOULD apply to limited companies. I'm not altogether sure about this as I haven't seen the details of the legislation in as much as how it applies to limited companies.
Rowley Birkin said:
Eric Mc said:
the other is an actual cut in the amount of interest that can be offset against profits.
Have you got a reference for this?Landlords will be able to obtain relief as follows:
"in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
Although, on reading it again, I see that I misinterpreted exactly what it says".
It is saying that in the first year of the restrictions, 75% of finance costs will be fully allowable against ALL your personal tax no matter what rate of tax you pay with 25% of the charges being limited to basic rate relief.
The amount being fully allowable will reduce over time until by tax year 2020/21 ALL the finance costs will be restricted to the basic rate of tax.
Notice how it talks about "finance costs" - not just mortgages interest, loan interest etc.
It's going to make the calculation of taxable profits and the tax arising on rental income very complex.
Eric Mc said:
Rowley Birkin said:
Eric Mc said:
the other is an actual cut in the amount of interest that can be offset against profits.
Have you got a reference for this?Landlords will be able to obtain relief as follows:
"in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
Although, on reading it again, I see that I misinterpreted exactly what it says".
It is saying that in the first year of the restrictions, 75% of finance costs will be fully allowable against ALL your personal tax no matter what rate of tax you pay with 25% of the charges being limited to basic rate relief.
The amount being fully allowable will reduce over time until by tax year 2020/21 ALL the finance costs will be restricted to the basic rate of tax.
Notice how it talks about "finance costs" - not just mortgages interest, loan interest etc.
It's going to make the calculation of taxable profits and the tax arising on rental income very complex.
I thought you'd seen something else that suggested there would be caps as well as a reduction in the rate of relief.
Eric Mc said:
From the actual Summer 2015 Budget document -
Landlords will be able to obtain relief as follows:
"in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
Although, on reading it again, I see that I misinterpreted exactly what it says".
It is saying that in the first year of the restrictions, 75% of finance costs will be fully allowable against ALL your personal tax no matter what rate of tax you pay with 25% of the charges being limited to basic rate relief.
The amount being fully allowable will reduce over time until by tax year 2020/21 ALL the finance costs will be restricted to the basic rate of tax.
Notice how it talks about "finance costs" - not just mortgages interest, loan interest etc.
It's going to make the calculation of taxable profits and the tax arising on rental income very complex.
Is there any implication that those restrictions apply to limited companies as well? Talk of basic rate suggests that it only applies to personal tax calculations not corporation tax calcs.Landlords will be able to obtain relief as follows:
"in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
Although, on reading it again, I see that I misinterpreted exactly what it says".
It is saying that in the first year of the restrictions, 75% of finance costs will be fully allowable against ALL your personal tax no matter what rate of tax you pay with 25% of the charges being limited to basic rate relief.
The amount being fully allowable will reduce over time until by tax year 2020/21 ALL the finance costs will be restricted to the basic rate of tax.
Notice how it talks about "finance costs" - not just mortgages interest, loan interest etc.
It's going to make the calculation of taxable profits and the tax arising on rental income very complex.
RYH64E said:
Eric Mc said:
From the actual Summer 2015 Budget document -
Landlords will be able to obtain relief as follows:
"in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
Although, on reading it again, I see that I misinterpreted exactly what it says".
It is saying that in the first year of the restrictions, 75% of finance costs will be fully allowable against ALL your personal tax no matter what rate of tax you pay with 25% of the charges being limited to basic rate relief.
The amount being fully allowable will reduce over time until by tax year 2020/21 ALL the finance costs will be restricted to the basic rate of tax.
Notice how it talks about "finance costs" - not just mortgages interest, loan interest etc.
It's going to make the calculation of taxable profits and the tax arising on rental income very complex.
Is there any implication that those restrictions apply to limited companies as well? Talk of basic rate suggests that it only applies to personal tax calculations not corporation tax calcs.Landlords will be able to obtain relief as follows:
"in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
Although, on reading it again, I see that I misinterpreted exactly what it says".
It is saying that in the first year of the restrictions, 75% of finance costs will be fully allowable against ALL your personal tax no matter what rate of tax you pay with 25% of the charges being limited to basic rate relief.
The amount being fully allowable will reduce over time until by tax year 2020/21 ALL the finance costs will be restricted to the basic rate of tax.
Notice how it talks about "finance costs" - not just mortgages interest, loan interest etc.
It's going to make the calculation of taxable profits and the tax arising on rental income very complex.
Rowley Birkin said:
No. In the full text it says "This does not apply to companies".
Eric seems to think that it should apply to companies, I'm trying to determine whether that's an ethical 'should' or something more official. I've never had any investment income via the company I own so I have no experience of how such income would be treated for tax purposes, or what allowances could be claimed.RYH64E said:
Rowley Birkin said:
No. In the full text it says "This does not apply to companies".
Eric seems to think that it should apply to companies, I'm trying to determine whether that's an ethical 'should' or something more official. I've never had any investment income via the company I own so I have no experience of how such income would be treated for tax purposes, or what allowances could be claimed.On the other hand, though, whilst I was surprised that the government announced these measures I will be gobsmacked if they extend it to companies. They would then be taking on some much more heavy duty players.
RYH64E said:
Rowley Birkin said:
No. In the full text it says "This does not apply to companies".
Eric seems to think that it should apply to companies, I'm trying to determine whether that's an ethical 'should' or something more official. I've never had any investment income via the company I own so I have no experience of how such income would be treated for tax purposes, or what allowances could be claimed.Limited companies effectively only have one rate of Corporation Tax i.e. there is no "basic rate" of Corporation Tax to which a restriction like this would apply.
I'm mystified that this debate is ongoing. Expanding on my post of Monday, surely, you either own a property privately as an investment, and interest is not tax-deductible, in the same way as any other personally owned investment, or you run a business, which rents out properties, and you pay tax after deducting interest, in te same way as any other business activity.
It is not complicated.
Smaller private landlords have enjoyed an anomaly in the tax system for a long while. That loophole has been closed. It happens. Move on.
One obvious way to move on is to transfer your portfolio into a company if the net benefit exceeds the net cost of doing so, which it is likely to, for a well-run portfolio, that will be held for a while.
It is not complicated.
Smaller private landlords have enjoyed an anomaly in the tax system for a long while. That loophole has been closed. It happens. Move on.
One obvious way to move on is to transfer your portfolio into a company if the net benefit exceeds the net cost of doing so, which it is likely to, for a well-run portfolio, that will be held for a while.
sideways sid said:
I'm mystified that this debate is ongoing. Expanding on my post of Monday, surely, you either own a property privately as an investment, and interest is not tax-deductible, in the same way as any other personally owned investment, or you run a business, which rents out properties, and you pay tax after deducting interest, in te same way as any other business activity.
It is not complicated.
Using an asset as the primary source to derive income is looked on as an investment activity, not a business - hence the different tax treatments.It is not complicated.
Eric Mc said:
sideways sid said:
I'm mystified that this debate is ongoing. Expanding on my post of Monday, surely, you either own a property privately as an investment, and interest is not tax-deductible, in the same way as any other personally owned investment, or you run a business, which rents out properties, and you pay tax after deducting interest, in the same way as any other business activity.
It is not complicated.
Using an asset as the primary source to derive income is looked on as an investment activity, not a business - hence the different tax treatments.It is not complicated.
Eric Mc said:
sideways sid said:
I'm mystified that this debate is ongoing. Expanding on my post of Monday, surely, you either own a property privately as an investment, and interest is not tax-deductible, in the same way as any other personally owned investment, or you run a business, which rents out properties, and you pay tax after deducting interest, in te same way as any other business activity.
It is not complicated.
Using an asset as the primary source to derive income is looked on as an investment activity, not a business - hence the different tax treatments.It is not complicated.
A single asset or limited number of assets doing the same thing is considered an investment by HMRC. A large portfolio operated in a business-like manner they consider to be a business. They consider neither a trade.
Things become a little inconsistent when you look at something like a hotel. It's a bricks and mortar asset purchased to generate income. Even a single, small, hotel, operated by a sole trader and spouse, will continue to be able to deduct debt interest whilst large portfolios of rented properties, requiring full-time staff to run them, won't.
Eric Mc said:
As will individuals. It's just that for individuals it will be restricted to their basic rate of Income Tax i.e. 20%. For companies it is restricted to their rate of Corporation Tax i.e. also (currently) 20%.
You're comparing apples and pears. The relevant point is that companies will receive full relief upon debt interest, higher rate tax paying sole traders will receive a fraction of that. They may be operating identical businesses. It's not equitable, is it.
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