Death of buy-to-let: landlords wake up to Osborne's 150pc ta

[PurpleMoonlight]

Rowley Birkin said:

Why is it a personal investment and not a business?

Perhaps the fact that you don't have to register with HMRC as self employed to own a BTL, the income is subject to personal income tax and the capital profit is subject to personal capital gains tax.

[mph1977]

PurpleMoonlight said:

Rowley Birkin said:

Why is it a personal investment and not a business?

Perhaps the fact that you don't have to register with HMRC as self employed to own a BTL, the income is subject to personal income tax and the capital profit is subject to personal capital gains tax.

see above and the fact that domestic mortgages can;t have tax relief

and that BTL has provided extra upwards pressure on FTB properties ...

[Rowley Birkin]

PurpleMoonlight said:

Rowley Birkin said:

Why is it a personal investment and not a business?

Perhaps the fact that you don't have to register with HMRC as self employed to own a BTL, the income is subject to personal income tax and the capital profit is subject to personal capital gains tax.

You'd notify HMRC via self-assessment for one property. However, if you're doing it as a full-time job you notify HMRC, as far as I am aware.

Sole traders in any business pay tax on profits and gains on a personal basis.

[PurpleMoonlight]

Rowley Birkin said:

Sole traders in any business pay tax on profits and gains on a personal basis.

And pay NI.

Do landlords have to pay NI?

[TooMany2cvs]

daytona365 said:

The peak district is very nice, but it's not the republic of London now is it ?

Nor, in case you hadn't noticed, is the vast vast majority of the country.

Even in London, I'd suspect your 100x figure is bks, even taking into account that prices in general more than doubled between 1975 and 1980, due to the 1970s hyperinflation.

[daytona365]

No, honestly it's true, or at least very close, though to be honest it did need a lot of renovation.

[Ozzie Osmond]

Rowley Birkin said:

The same reason that car hire companies get full relief on debt interest. They buy the vehicles to rent out.

• Vehicles depreciate.

• Houses appreciate.

Not the same at all, is it.

[Rowley Birkin]

Ozzie Osmond said:

Rowley Birkin said:

The same reason that car hire companies get full relief on debt interest. They buy the vehicles to rent out.

• Vehicles depreciate.

• Houses appreciate.

Not the same at all, is it.

Neither of those statements is true necessarily.

We've bought housing stock that has fallen in value. Some car hire firms sell cars for more than they pay for them.

But I get what you're saying.

[Rowley Birkin]

PurpleMoonlight said:

Rowley Birkin said:

Sole traders in any business pay tax on profits and gains on a personal basis.

And pay NI.

Do landlords have to pay NI?

We do, on our sole trader property business.

[Muffster]

[quote=Rowley Birkin]

It's not as easy as that.

The problem here is individual LLs with borrowing are the ones being hit. Many of them have BTL mortgages. Most BTL companies don't allow Ltd co. structures. If these LLs try to refinance with a bank, using commercial finance, it will be an expensive exercise. It also increases risk immensely because all commercial finance T&Cs basically allow the banks to recall the loan on a whim if the sector stops being flavour of the month for them.

Also, the LL will need to pay SDLT on all the properties. They may also have to pay some CGT, though there are ways around that but restrictions apply.

Rowley Birkin, could you elaborate on this a little further please.
What if the properties to be transferred in to a LTD company were below the stamp duty threshold?

Is it a difficult procedure to set up and transfer to a company rather than operate as an individual.
Also what restrictions would apply with CTG?

Many thanks.

[Rowley Birkin]

Muffster]owley Birkin said:

Rowley Birkin, could you elaborate on this a little further please.
What if the properties to be transferred in to a LTD company were below the stamp duty threshold?

Is it a difficult procedure to set up and transfer to a company rather than operate as an individual.
Also what restrictions would apply with CTG?

Many thanks.

I am not an accountant. But done right I believe you should be able to incorporate without incurring SDLT and defer CGT. However it's definitely worth seeking out a good tax accountant for the work, because I think the scope for cocking it up is significant.

Also, as I mentioned previously, you'll need to get the agreement of your lender. If it's a BTL lender you may find that they don't want to play. If they do, they will probably want to charge you and if you're on a sweet deal they'll probably use it as leverage to renegotiate. You'll also need a solicitor who is on your lender's panel.

All the above assumes, obviously, that you're doing this because you have borrowings and want to escape the new rules. You're also aware obviously that you may go to all the effort and find that the rules are changed before they take effect, or conversely if it all goes swimmingly for the chancellor he may decide to mess with tax relief for property companies.

[phib]

Stupid question coming up ......

From GOV website :

currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax, giving them an advantage over other home buyers. Wealthier landlords receive tax relief at 40% and 45%. This tax relief will be restricted to 20% for all individuals by April 2020.

If you are only a 25% tax payer does this just mean you are now 5% worse off ?

Its been a long day and its probably a daft question I just can't get my head around !!

Phib

[anonymous-user]

how would anyone be a 25% rate tax payer?

the rates are 0, 20, 40 and 45%

[anonymous-user]

you can read the ruling about whether residential property is a business or an investment (in one specific case) here

http://www.tribunals.gov.uk/financeandtax/Document...

it is quite interesting and should be of interest to anyone thinking of rolling properties held personally into a Ltd

[phib]

JPJPJP said:

how would anyone be a 25% rate tax payer?

the rates are 0, 20, 40 and 45%

Ok I meant 20% so no worse off

Phib

[Ozzie Osmond]

Muffster said:

The problem here is individual LLs with borrowing are the ones being hit.

"Hit" is merely restriction of tax relief to basic rate. If people have gone into BTL on so tight a margin that this pushes them underwater then I reckon they were muppets in the first place.

[GT03ROB]

Ozzie Osmond said:

Muffster said:

The problem here is individual LLs with borrowing are the ones being hit.

"Hit" is merely restriction of tax relief to basic rate. If people have gone into BTL on so tight a margin that this pushes them underwater then I reckon they were muppets in the first place.

[Muffster]

Rowley Birkin said:

I am not an accountant. But done right I believe you should be able to incorporate without incurring SDLT and defer CGT. However it's definitely worth seeking out a good tax accountant for the work, because I think the scope for cocking it up is significant.

Also, as I mentioned previously, you'll need to get the agreement of your lender. If it's a BTL lender you may find that they don't want to play. If they do, they will probably want to charge you and if you're on a sweet deal they'll probably use it as leverage to renegotiate. You'll also need a solicitor who is on your lender's panel.

All the above assumes, obviously, that you're doing this because you have borrowings and want to escape the new rules. You're also aware obviously that you may go to all the effort and find that the rules are changed before they take effect, or conversely if it all goes swimmingly for the chancellor he may decide to mess with tax relief for property companies.

Thanks for the reply.
I'm trying to think ahead (as we all are)And considering to form a LTD company when the current deals run out & refinance commercially in a LTD structure if it would be possible. No knowledge of commercial finance so I need to do my homework there. Not spoken to the accountant yet, I'm trying to educate myself before I sit down with him.
Do you really think that Osbourne will change his mind on the rules here just because a load of private landlords will make a fuss? I don't.
And what will be the impact of X number of people now forming a LTD to avoid the changes, therefore denying the proposed source of income to HMRC. Not difficult to see where his next target would be. I can't help thinking that I (we) will have my pants pulled down whichever route I choose.

[Rowley Birkin]

JPJPJP said:

you can read the ruling about whether residential property is a business or an investment (in one specific case) here

http://www.tribunals.gov.uk/financeandtax/Document...

it is quite interesting and should be of interest to anyone thinking of rolling properties held personally into a Ltd

Excellent, thanks for posting. Yes, it's very interesting and proves why anyone looking to incorporate needs to get proper advice.

[Rowley Birkin]

Muffster said:

I'm trying to think ahead (as we all are)And considering to form a LTD company when the current deals run out & refinance commercially in a LTD structure if it would be possible. No knowledge of commercial finance so I need to do my homework there. Not spoken to the accountant yet, I'm trying to educate myself before I sit down with him.
Do you really think that Osbourne will change his mind on the rules here just because a load of private landlords will make a fuss? I don't.
And what will be the impact of X number of people now forming a LTD to avoid the changes, therefore denying the proposed source of income to HMRC. Not difficult to see where his next target would be. I can't help thinking that I (we) will have my pants pulled down whichever route I choose.

Commercial finance is a double-edged sword. It's more flexible, but you have far less protection and banks are people from whom it's best to have as much protection as possible!

Will Osborne change his mind? Not willingly and not entirely, if at all. But I can see him making some exceptions if the right pressure is brought to bear.

The link that JP JP JP posted above is interesting for two reasons. Firstly it emphasises why people like you need good advice - you may gain nothing by incorporating. Also because it highlights why this new regime is unfair to large sole trader landlords who are genuinely running a business. They can be doing exactly the same as another landlord who is incorporated and yet be treated completely differently for tax purposes.