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  • Tax

    Analysis of the impact of Tax changes on landlords

    I've been promising the contents of this Blog article for a while.

    In it I have examined some of the effects and how it might affect your Breakeven points as interest rates rise for instance, or your LTV Breakeven point sending on your salary.

    Hopefully this is useful and I'm more than happy to discuss any clarification points.

    http://www.comfortlettings.co.uk/blog/20...nsequences
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    Phil Ashford ACA
    Partner - Comfort Letting Agents LLP
    Nottingham Letting Agent
    Student HMO Specialist | Residential Lettings | Investment Appraisal | BTL Renovations
    This is a very nice illustration of the real consequences of this manufactured new tax. Thank you for posting it Phil
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    A very good read - thank you.

    Hopefully this will help more people understand the consequences of this change!
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    Luke Marchbanks
    Belvoir Bournemouth

    M:079790123970 E:luke.marchbanks@belvoir.co.uk W:http://www.belvoir.co.uk
    Should this great blog post be offered free to other agents (with acknowledgment) so that the word is got out better?
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    I'm happy with that.
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    Phil Ashford ACA
    Partner - Comfort Letting Agents LLP
    Nottingham Letting Agent
    Student HMO Specialist | Residential Lettings | Investment Appraisal | BTL Renovations
    This blog should be reprinted in entirety in all national newspapers
    It is the clearest explanation I have seen yet of the ramifications of this stupid tax
    It should be rammed under the Chancellor's nose for justification
    I doubt many realise the true impact of the tax changes
    Reading this article will truly show them the personal financial destruction that is soon to be visited on them
    The only reason I could see for people to hang onto tax losing properties is the hope of capital gains
    Would it be worth paying £1500 per year to pay tax in the hope that the property increases in value sufficient to pay off all taxes and leave a PROFIT
    I just can't see that happening anytime soon
    It would be a gamble that say in 15 years time the property has doubled in value!?
    But it would have cost over £20000 to have that opportunity!?
    Surely nobody is going to take that risk and this scenario only applies to current interest rates
    I believe LL once they see this article will just give up and exit the market
    They could probably get better returns on the stock market!!!?
    But a brilliant representation of what will happen
    Well done to Phil
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    So if you could contribute £20k over the next 15 years for a (say) £100k capital gain you wouldn't do it? Seems crazy to me.
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    The above is a general comment and is not intended as legal or professional advice; you should not take any action in reliance thereon without obtaining advice specifically tailored to your circumstances from your own solicitor or other professional advisor(s).
    (02-09-2015 05:49 PM)fanio Wrote:  So if you could contribute £20k over the next 15 years for a (say) £100k capital gain you wouldn't do it? Seems crazy to me.

    I would not.

    Of the £100k cap gain, lets assume the £25K is taken up in tax and legal costs etc. (We don't know what the tax rate will be in 15 years time!)

    We then have the £20K costs. Leaving about £55K of gain.

    To get the gain you must have invested money for the deposit for the property, this money is tied up for 15 years. Say the deposited needed was only £25K (likely to be more).

    If I put £25K in a ISA for 15 years, reinvesting the income I can expect at least 6% growth a year. Over 15 years 6% growth changes the £25K starting amount into £59K
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    (02-09-2015 06:14 PM)ian2128038772 Wrote:  
    (02-09-2015 05:49 PM)fanio Wrote:  So if you could contribute £20k over the next 15 years for a (say) £100k capital gain you wouldn't do it? Seems crazy to me.

    I would not.

    Of the £100k cap gain, lets assume the £25K is taken up in tax and legal costs etc. (We don't know what the tax rate will be in 15 years time!)

    We then have the £20K costs. Leaving about £55K of gain.

    To get the gain you must have invested money for the deposit for the property, this money is tied up for 15 years. Say the deposited needed was only £25K (likely to be more).

    If I put £25K in a ISA for 15 years, reinvesting the income I can expect at least 6% growth a year. Over 15 years 6% growth changes the £25K starting amount into £59K

    However, If you buy well you should be able to re-mortgage out the deposit money in a couple of years. You now have no funds tied up in the property other than the costs so the return is infinite. I realise this doesn't take into account the accruing costs (estimated at £20k over the 15 year term) but still a good deal. Also, it doesn't take into account any rent rises which can mitigate the cots to a degree.
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    (03-09-2015 09:25 AM)Paul Arnold Wrote:  
    (02-09-2015 06:14 PM)ian2128038772 Wrote:  
    (02-09-2015 05:49 PM)fanio Wrote:  So if you could contribute £20k over the next 15 years for a (say) £100k capital gain you wouldn't do it? Seems crazy to me.

    I would not.

    Of the £100k cap gain, lets assume the £25K is taken up in tax and legal costs etc. (We don't know what the tax rate will be in 15 years time!)

    We then have the £20K costs. Leaving about £55K of gain.

    To get the gain you must have invested money for the deposit for the property, this money is tied up for 15 years. Say the deposited needed was only £25K (likely to be more).

    If I put £25K in a ISA for 15 years, reinvesting the income I can expect at least 6% growth a year. Over 15 years 6% growth changes the £25K starting amount into £59K

    However, If you buy well you should be able to re-mortgage out the deposit money in a couple of years. You now have no funds tied up in the property other than the costs so the return is infinite. I realise this doesn't take into account the accruing costs (estimated at £20k over the 15 year term) but still a good deal. Also, it doesn't take into account any rent rises which can mitigate the cots to a degree.

    This strategy seems too much of a gamble to me.

    My logic has always been to start with the basics - a business with good positive cash flow. Everything else (capital gains) is a bonus and not guarenteed. YES house prices have doubled over the last however many years. There is no certain terms to say it would do the same over the next 10years. Likely - but not certain. Would you really build a business plan on something which you have zero control over?
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    Luke Marchbanks
    Belvoir Bournemouth

    M:079790123970 E:luke.marchbanks@belvoir.co.uk W:http://www.belvoir.co.uk

    (03-09-2015 09:36 AM)Luke Marchbanks Wrote:  My logic has always been to start with the basics - a business with good positive cash flow. Everything else (capital gains) is a bonus and not guarenteed. YES house prices have doubled over the last however many years. There is no certain terms to say it would do the same over the next 10years. Likely - but not certain. Would you really build a business plan on something which you have zero control over?

    Is positive cash flow any more guaranteed than capital gains. Look at what`s just happened They both have a risks attached. All businesses have a degree of risk. You calculate the risks as best you can. The chancellor plus other market forces could attack cash flow or/and capital gains at any stage in the investor's 25 year career.

    People buy traditional pensions with no positive cash flow at all in fact it is negative cash flow. Is that good business planning as you have zero control over it. Some people see property as a pension not a business. They are happy with neutral cash flow . Is property a business, an investment, a pension or possibly a mixture of all three Peoples start criteria is different in how they want and expect their money to perform

    I believe house prices like you are likely to double ( and some). Maybe every 10 years Probably in 15 years . Very very likely in 25 . Whilst not guaranteed I think its very good odds as history demonstrates. That is one of the key reasons I invest and leverage property

    My 80 yr old next door neighbour where I used to live said he bought his 3 bed semi for 3K in 1933. I bought mine a similar one to his for 52K in 1987. He thought I was mad. I moved out and onwards in 1993 but I saw one came on the market in 2005 for 225k. In 2030 I have every confidence it will be probably at the 500K level. In 2055 I`m sure it will be a bog standard 1 mil house. I wish I had kept it and rented it out if only to tread water yield wise.

    Buy 10 of them now and the compound capital growth and wealth you create for yourself is phenomenal . George Osbourne recognised this and has slowed down the army of serial BTL`ers that was just as it was beginning to pick up good speed but the collateral damage was that we were crushing first time buyers in our wake.
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    Jonathan Clarke. http://www.buytoletmk.com