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  • Mortgages & Finance

    *Buy-to-let tax relief

    Buy-to-let tax relief changes

    The changes to buy-to-let tax relief for landlords proposed by Chancellor George Osborne in his latest budget have provided a new hot topic for debate. Currently, landlords can deduct costs relating to their buy-to-let properties, including mortgage interest payments, from their profits and receive tax relief on these costs up to 40 per cent. The new proposals, to be phased in gradually from April 2017, will see landlords being able to claim only the basic level of tax relief at 20 per cent.

    Ostensibly, these changes are being introduced to create a more level playing field between residential owner-occupiers and buy-to-let property owners. However, there have been suggestions from some industry pundits that the measure is being brought in to appease certain public pressure groups and as a response to campaigns by aspects of the national press to remove tax relief for landlords.

    Parties interested in buy-to-let may question how reduced tax relief will affect the sector and whether it will deter landlords from investing in rental properties. In all likelihood, probably not. However, it would certainly be prudent for existing landlords, especially those with a portfolio of properties, to seek tax advice from their accountants and to review their current investment strategy.

    Considering the concern from some groups about rising rents and lack of private housing available in the UK, this move by the Chancellor could be counter-productive. If landlords experience a reduction in the profitability of their buy-to-let property investments, they may look to redress this loss by increasing their rental income which would be to the detriment of tenants.

    It should be noted that these tax relief changes only apply to landlords as individuals and will not affect the existing tax arrangements for limited companies. Consequently, we may see more investors using a company vehicle to manage their buy-to-let portfolios, especially as corporation tax is set to reduce to 18 per cent by 2020.

    The good news is that a number of buy-to-let lenders will accept applications for limited companies providing they are set up as a Special Purpose Vehicle (SPV) for the sole purpose of buying and managing property. Shawbrook Bank and Norwich & Peterborough (N&P) can also provide finance for trading companies, with N&P also accepting LLPs and trusts.

    Kent Reliance has products available up to 85% LTV in its specialist range and Paragon Mortgages has a selection of buy-to-let mortgages available for limited companies up to 75% LTV. New entrants to the buy-to-let market Axis Bank and Fleet Mortgages both also provide further options for landlords seeking finance via a limited company.

    Tel: 029 2069 5480
    Email: info@propertytribesmortgages.co.uk
    Web: http://www.propertytribesmortgages.co.uk


    *Denotes sponsored post. In the interests of transparency, Property Tribes will receive a small commission for any mortgage raised through PTM. This helps us maintain this site as a free to use community resource.
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    I've still not quite understood this. If someone could please explain that would be much appreciated

    Assuming say im a lower rate tax payer, whats is the difference with the old set up and the new budget changes?

    Rent £1950 per month
    Mortgage £950 per month

    Thanks very much
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    (30-07-2015 12:36 PM)Devonshire86 Wrote:  I've still not quite understood this. If someone could please explain that would be much appreciated

    Assuming say im a lower rate tax payer, whats is the difference with the old set up and the new budget changes?

    Rent £1950 per month
    Mortgage £950 per month

    Thanks very much

    I'm afraid the response you have had is incorrect. People are only starting to realise that the proposed change WILL IMPACT ON BASIC RATE TAXPAYERS. I am a full time landlord and a chartered accountant and only realised 3 days ago - the full impact has been well hidden for obvious reasons.

    They are not just restricting the expense that we are currently allowed from 40% to 20% they are disallowing ALL (after 4 years) our interest expense so our taxable profit will be our current net profit PLUS our interest expense. We are then taxed on this income AND THEN we get a 20% relief on our interest expense.

    Its crafty and evil and will make 10s of 1000s landlords higher rate tax payers.

    There is a lot on this on the property118 forum which you should take a look at ie spreadsheet calculator to see the impact and details of a petition against the proposed change.

    Adam - this is wrong and you really shouldn't be saying this - please see my response to the original question.
    Jon
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    The word for today is Ostensibly; going to have to start using that one.

    @Devonshire86 there is no change for lower rate tax payers. The Government says such changes effect only 1 in 5 landlords, the RLA points out that that 1 in 5 hold the most properties so rents will rise.

    Previously HRT got 40% tax relief on there loans., the rest got 20%.
    Now all landlords will get just 20% tax relief on there loans.
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    THIS PROPERTY TRIBES ACCOUNT IS NO LONGER USED. DO NOT SEND PRIVATE MESSAGES.

    YOU CAN REACH ME AT BESPOKE FINANCE for HMO Mortgages, Cheap Life Insurance and Limited Company Buy-to-Let on 08009202001


    (30-07-2015 01:47 PM)Adam Hosker Wrote:  The word for today is Ostensibly; going to have to start using that one.

    @Devonshire86 there is no change for lower rate tax payers. The Government says such changes effect only 1 in 5 landlords, the RLA points out that that 1 in 5 hold the most properties so rents will rise.

    Previously HRT got 40% tax relief on there loans., the rest got 20%.
    Now all landlords will get just 20% tax relief on there loans.

    Not true Adam. Many Landlords who today are assessed at basic rate with find them selves assessed at 40% when the changes are implemented. A good few will find their personal allowance gone and even 45% tax suddenly applied.

    The change does not restrict relief to basic rate.

    It assesses tax on rent minus allowable expenses (but including finance costs) and then applies a relief equal to 20% of finance costs to the resulting tax.

    Therefore the value of finance costs is ADDED to real net income for tax purposes and then a relief added back later.

    As a result many landlords will move from basic rate to 40% tax on part of their "income", even the part that is eaten by interest and arrangement charges.

    Almost everyone with a £35k job and a couple of BTLs on the side will move to 40% tax on the rental income.

    Many who grew a large portfolio on the buy/refinance/buy more model will also end up with tax due on a BTL business that exceeds the real profit - i.e. greater than 100% taxation AND with no means to move the properties to a Ltd company as their equity will often be less than the CGT & SDLT payable on the transfer.

    Hence the outcry and the petitions....

    I have to say I'm sick of the press misrepresentation of how this proposed new mechanism works....every day I meet landlords who read the Telegraph or the Daily Mail and made the assumption that they will only be able to DEDUCT 20% of their finance costs to arrive at profit. A totally wrong and potentially disastrous conclusion.
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    Glad you like the word of the day, Adam - might make it a feature of all PTM posts!!
    I always appreciate your comments.
    All the best, Chloe at PTM :-)
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    I agree entirely - its the worst stealth tax ever proposed - even now landlords don't realise how it will hit the basic rate taxpayers. There is a link on Property 118 site to the petition to get it discussed in parliament - only just gone up and has 1200+ people on it already but needs to get to 100,000 and then it will be discussed in parliament.

    Please can this site also post the link so its members can easily sign the petition?
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    With regards to the petition, according to various posts on FB, the original petition is being withdrawn for a more unified one that better reflects the concerns of landlords.

    There can only be one petition on any one topic on the Government site, and we believe that the current petition is going to be removed and a new one submitted.

    Until it is clear which petition it is, PT will hold off urging people to sign. It is imperative that we present a united front and all sing from the same hymn sheet in order to get any traction with policymakers. David Smith, Policy Director of the RLA mentions this in his recent interview.

    With regards to content about this issue, Property Tribes has led the way, including publishing the first post on how the budget affects landlords within seconds of the Budget announcement ending ... and we have also got calculators etc. on that thread.

    These discussions and resources are all available on:

    Budget beating strategies for landlords
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    I have just found out that the second petition has been refused, so it IS the first petition that is being used.

    PLEASE SIGN THE PETITION
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    I hope the final petition is ready soon so people can actually get on with signing it.

    The other major point about the change is that it greatly sharpens the effect of rate rises on those with the very common 75% LTV too.

    A couple of points would have hurt but just trimmed lifestyle a bit....with the proposed change the income after tax is hit very very hard.

    Those who took 85% products are in the mire if this goes ahead as any decent sized agent-managed portfolios quickly go negative after tax as 6% interest is reached.
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    @jonbourne @Refurb to Rent - if you both say so. I think your incorrect but im in a bit of a rush so can not confirm... Will do so and get back to you.
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    THIS PROPERTY TRIBES ACCOUNT IS NO LONGER USED. DO NOT SEND PRIVATE MESSAGES.

    YOU CAN REACH ME AT BESPOKE FINANCE for HMO Mortgages, Cheap Life Insurance and Limited Company Buy-to-Let on 08009202001