Tenant Tax - BTL mortgages

[Jeremy]

It used to be the case that you could buy a property, and the rental income would cover mortgage interest and repayments, AND you'd have enough left to cover your income tax. Maybe you still can in some areas - or even in London if you have a huge deposit? But I don't think it's the norm... rental yields are very tight these days.

[rendelharris]

Robert Poste's Child Wrote:

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> Have to agree to differ on that one then. The

> other one I've heard BTL owners use is 'it's my

> pension', said as though that somehow carries more

> moral weight.

Ha! That was one used on us to justify asking for a 10% rent rise after one year's leasing.

[????]

Robert Poste's Child Wrote:

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> They don't do it out of altruism. It's a gamble,

> like any investment, and if the risks are getting

> uncomfortable for the individual then they can

> choose to take the money out of property and stick

> it somewhere lower-risk, like an investment

> account. They have a choice.

>

> Have to say I do believe BTL owners are a blocker

> at the lower end of the market, and I've heard

> quite a few of them use the one about having their

> mortgage paid off for them. Maybe they're cliches

> because they're true.

It's not a bank account, or even a share it's a property with tenants,it's not very liquid you just can't just switch!

On a macro scale this is why a whole bunch of Commercial Property funds have suspended themselves since Brexit.

I've not BTL but the hate private landlords get is ridiculous - as if big commercial renters and/or LA's/ Housing associations are efficient, pleasant, well run, easy to reach Landlords.

Not supporting the OP on this though..

[Robert Poste's Child]

> It's not a bank account, or even a share it's a property with tenants,it's not very liquid you just can't just switch!

I didn't say it was liquid, and hopefully with that size of investment people are planning longer-term anyway, but, yes, you can sell up and put your money elsewhere. If/when the market drops we will quickly see that happen.

[Otta]

Loz Wrote:

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> Otta Wrote:

> --------------------------------------------------

> -----

> > Surely there are good arguments for and against

> BTL. It's not about hate.

>

> That's true, but the ridiculous levels of hate

> aimed at landlords is pretty unpleasant. Usually

> by people who have no idea of the details,

> finances and risks of renting out houses, but feel

> they can trot out tired, misinformed cliches like

> 'paying off their mortgage', 'greedy landlords',

> 'free house' and 'causing the housing crisis'.

I know lots of landlords, all perfectly decent people. But my last landlord was a bastard. They'd pretend to befriend vulnerable poeple then buy their houses at reduced cost.

Basically as with most things, there are good guys and there are bastards.

[ratty]

You rarely hear about the good ones cos people don't gripe if they're happy.

[SLad]

Loz Wrote:

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> SLad Wrote:

> --------------------------------------------------

> -----

> > The free ride I'm talking about is having the

> > equity in my property paid off for me without

> my

> > paying tax on the money I make on the

> enterprise.

>

> What Jeremy said - you only get relief on interest

> costs, not equity pay downs. I'm surprised, given

> your level on knowledge on this subject, you don't

> know this.

Sorry Loz, I think you misunderstand me: we may be a rare breed but we have a repayment mortgage on our rental property in London. Rental income is such that it covers the full extent of mortgage repayments, expenses, tax and leaves a profit now, on the transitional arrangments and by the time the tax is implemented in full in 2020 ( or so my IFA and various free calculators tell me), we just won't have as much of a profit.

As far as my two penniesworth are concerned, I think we as private landlords have had a v easy deal of it for years and I'm unconcerned that's being reined in. I appreciate other landlords with tighter yields might be in greater difficulty but if that serves to release more property on to the market for first time buyers then so be it. If the figures move against us and make it completely ridiculous to keep the property then certainly we will sell it, pay our CGT and still have made a significant return on our investment.

[Burbage]

Tracey Forest Wrote:

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> We're not arguing for tax free profit

> Jules-and-Boo. Many private landlords pay 40% as

> opposed to the 20% that corporate buy to let

> landlords pay. We're not happy with having to pay

> up to 233% tax on a zero profit.

And what is 233% of zero, exactly?

Mathematics aside, there is some good reasoning behind this as was gone through in the relevant debate in the Commons.

The basic point is that property businesses have an advantage over the individual house buyer, who gets no income-tax relief for their mortgage-interest payments, and this is obviously unfair.

Moreover, a lot of the problems in BTL came from people who had little money of their own, but used collateral from other homes to borrow other people's money to develop a business owing other people's homes. That's fine (perhaps) for the Captains of Industry that run outfits like BHS or Woolworths, who were merely competing with other businesses to stiff their suppliers.

Landlordism is, however, subtly different. There, the competition is between landlords, with tax relief and spiralling equity and the hard-working individuals with no tax relief whatever who might have saved their own money for a deposit if it wasn't for a rentier continually waving the threat of two months' notice over their families, and perennially ratcheting the rent by a fraction less than the cost of moving house.

Effectively, the market was so rigged that the removal of interest relief simply had to be done. Landlords who object are perfectly free, as the government pointed out, to sell their properties (possibly to people who need a home rather than a portfolio) and invest in something productive instead.

It would be an exaggeration to say that your response, to rattle a tin for some lawyers, beggars belief. But at least you now know what you can do.

[Jeremy]

SLad... it's easy to say "I'm happy to pay the extra tax" if you can afford it... but many won't. Not saying landlords deserve sympathy here (let alone charity donations), but this is bad news for both landlords and tenants.

Hopefully potential buyers will see the upside of all this. But despite the obvious anti-landlord rhetoric, private rental does serve a purpose.

[SLad]

Yes, we can afford it because it comes from the income we get on the flat...

I think only time will tell what impact this has on the market generally and, as Burbage points out, anyone who is truly placed in difficulty by this can sell their property and have out of the situation that way. In that way, there's not a great difference between this and any other investment which turns rotten.

[DaveR]

"The basic point is that property businesses have an advantage over the individual house buyer, who gets no income-tax relief for their mortgage-interest payments, and this is obviously unfair."

Except property businesses will continue to benefit from tax relief on borrowing, just like every other business. The only exception will be property businesses operating under the personal income tax regime rather than any other regime.

"Moreover, a lot of the problems in BTL came from people who had little money of their own, but used collateral from other homes to borrow other people's money to develop a business owing other people's homes. That's fine (perhaps) for the Captains of Industry that run outfits like BHS or Woolworths, who were merely competing with other businesses to stiff their suppliers."

I don't get this - if someone borrows against their personal assets to start a business that's usually seen as a bold, ballsy risky thing to do - entrepreneurial spirit and all that. But if they do it to start a property business, it's wrong? And if it's done by big business it's OK?

"Landlordism is, however, subtly different. There, the competition is between landlords, with tax relief and spiralling equity and the hard-working individuals with no tax relief whatever who might have saved their own money for a deposit if it wasn't for a rentier continually waving the threat of two months' notice over their families, and perennially ratcheting the rent by a fraction less than the cost of moving house."

Calling something 'landlordism' doesn't change the essential nature of the situation - it just reveals your bias.

"Effectively, the market was so rigged..."

Ironically, the exact opposite is true. The market for residential property was becoming more and more efficient, in classical economic terms i.e. the true value of the underlying asset is exposed through a freely determined market price. But it is correct to say that the market was distorted by tax reliefs available to one class of buyer. That distortion will continue, because tax relief will continue to be available to corporate (in the tax sense) landlords.

There would be no problem with BTL if there wasn't an underlying problem with the housing market - most obviously under-supply in regions of high demand - and a pre-existing culture favouring home ownership as an inherently desirable thing, that makes us view buying and owning a home in quasi-spiritual terms. There are also linked problems around security of tenure, in particular, that support a more rational preference for buying vs renting. There are lots of things that govt could and should be doing to address real problems with the UK housing market, but these tax changes are not going to help anyone.

All that having been said, this is still a ridiculous campaign/appeal.

[Jeremy]

SLad Wrote:

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> Yes, we can afford it because it comes from the

> income we get on the flat...

Yes I understand that, I'm glad your flat will continue to be self-sustainable. But for those that won't... yes they can sell - and they will. Then surely less supply = higher rent, so tenants will also lose out here. No?

[DaveR]

"Then surely less supply = higher rent, so tenants will also lose out here. No?"

When a BTL landlord sells, the property doesn't disappear, unless it's left vacant, which seems unlikely. It's either bought by someone else and rented out, or owner-occupied (taking one more potential renter out of the rental market, directly or indirectly).

At the risk of descending to a bit of Economics 101, prices of houses to buy or to rent are largely market determined. The fundamental reason why prices are so high in London and around are pretty straightforward, and are largely demand driven - there is very limited supply, and 'substitutability' does not operate in a way that an economist would consider rational (the 'price' for living in ED over say Croydon is massive, and largely driven by intangible stuff of no obvious economic value). Even cheap finance is ultimately the result of high demand - that's what supports the value of the underlying security for lenders.

The point of that is that no landlord can just put up the rent to whatever they want - someone has to be willing to pay it. I've seen arguments that BTL landlords are more likely than corporates to push rents up because their margins are tighter, but I'm not aware of any evidence on that.

[Jeremy]

DaveR Wrote:

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> or owner-occupied (taking one more

> potential renter out of the rental market

Maybe... IMO there will always be a strong demand for rental properties in London. Obviously a good number of these are people who would like to buy but can't afford to, but many are renting for other reasons.

[alice]

private landlords are often doing the job the council should be doing. There would be mass homelessness if they were pushed out and recent changes are heading it that way.

[red devil]

DaveR Wrote:

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> The point of that is that no landlord can just put

> up the rent to whatever they want - someone has to

> be willing to pay it. I've seen arguments that

> BTL landlords are more likely than corporates to

> push rents up because their margins are tighter,

> but I'm not aware of any evidence on that.

My personal experience of renting from both a private and corporate landlord is that the private landlord never put the rent up over the 3 years I rented from him, whereas a corporate landlord did, every year without fail. The private landlord lived above the flat I rented, and I got on well with him, and he told me it wasn't in his best interest to keep putting the rent up as it usually meant the tenant would become disgruntled and leave, and the associated costs and hassle of a rental void usually outweighed any extra rental income. Instead he waited until the tenant left and then put the rent up to the current market value for the next tenant, and so on. He was more interested in the long term capital gain rather than short term rental profit.

And let's not forget as well as dodgy landlords, there are just as many, if not more, dodgy tenants about. You only have to watch one of those 'Bailiff' type programmes to see what a total shit some tenants can be. It can take months and a lot of money for a landlord to regain possession of their property...

[Loz]

DaveR Wrote:

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> When a BTL landlord sells, the property doesn't disappear, unless it's left vacant, which seems

> unlikely. It's either bought by someone else and rented out, or owner-occupied (taking one more

> potential renter out of the rental market, directly or indirectly).

That is true, but currently you need a household salary of about 70-80k to afford to buy a house in London. Move rental properties to the purchase market and, yes, people with these level of salaries will buy them. But the rental market is already under a lot of pressure, so this will raise prices in that market as supply lowers, which will have a big effect on those on lower salaries.

Not all people can buy. Not all people want to buy.

Having said that, houses at the lower end of the market are mostly being moved from private landlords to corporate landlords. That will almost certainly not be good for competition.

I just can't see the upside of this policy. It is erratically applied and helps just about no one, but has the potential to hurt those people who have to or want to rent.

[DaveR]

It's obviously a simplification, but the basic point remains - there's no reason why a BTL landlord selling up will lead to increased rents, because it doesn't affect the supply or demand for property.

[TE44]

Hey tracey, why don't you ask Cherie Blair to ask

Toney, is she given her time for free.

[Loz]

DaveR Wrote:

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> It's obviously a simplification, but the basic

> point remains - there's no reason why a BTL

> landlord selling up will lead to increased rents,

> because it doesn't affect the supply or demand for

> property.

I just explained how it can.

You are assuming that supply and demand are fixed amounts. They are not. Demand in London is traditionally greater than supply. Population increase is faster than property building. That's why councils often have to put people up in B&Bs.

And one more: people often rent in shared houses (HMOs). They rarely buy in shared houses.

[DaveR]

The things you are talking about are unrelated to the fact of a sale of a property. Of course demand goes up with population increase. Supply is affected by whether house are offered for rent as HMOs or occupied by one family, or indeed one individual. But there is no reason why the change in the tax regime, even if it leads BTL landlords to sell up and get out of the sector, will change the underlying market situation, and hence the price of property (to buy or rent). Obviously, if loads of people sell up at the same time you might get a dip in sale prices in a soft market, but if the underlying demand remains that will correct itself pretty quickly.

TBH at the moment the factors most likely to impact on London property prices are US bankers f*cking off to Frankfurt and overseas investors piling in on the back of a cheap ?.

[Loz]

About 50% of homes in London are owner-occupied, about 25% social housing and 25% private rent. It's obvious that moving property from the private rent sector to the owner-occupier sector will have a larger effect on the private rent sector that the owner sector.

Just look at the massive pressure on social housing. That was 35% in 1981 and 25% now. By your theory, there shouldn't be a problem as the demand and supply evens each other out across the sectors. But it hasn't worked that way, has it?

Rents will go up. It's basic economics.

[rendelharris]

Loz Wrote:

>

> Just look at the massive pressure on social

> housing. That was 35% in 1981 and 25% now. By

> your theory, there shouldn't be a problem as the

> demand and supply evens each other out across the

> sectors. But it hasn't worked that way, has it?

I don't know which of you is correct - points on both sides I'm guessing - but surely you have to factor into the pressure on social housing not only the decrease in availability but the fact that there are almost exactly two million more people in London today than in 1981?

[Loz]

Actually, RH, that will affect both social and private rental sectors, since most newcomers rent in some shape or form.

But again, downward pressure on rental supply can only lead rents in one direction.

[Tracey Forest]

Hi Burbage

I can't really comment on the rattling of a two month notice bit as I've never experienced that either side as a renter or a landlord.

I'm aware that there is a distinction between the private owner and the individual private landlord but this is about the distinction between the private landlord and the corporates. It's fair to ask why all private landlords didn't incorporate at the outset but this is just the way it happened for a lot of people back in the eighties and nineties. Had we known they'd be such a disadvantage on me as an individual I would have incorporated back in the nineties. I've paid tax as an individual for over 17 years on my rental property which has been a higher rate than a corporate. There's also a higher rate of tax to come.

The 233% on zero I?m talking about is as follows;

In 2015/2016

? Income of ?182,000

? Expenses of ?50,000

? Mortgage interest of ?117,000

? Profit is ?15,000

? Effective rate of tax for a higher rate tax payer is 40% especially as a lot of us work

In 2020 with the new rate of tax and with the same figures profit would be ?132,000. So an effective tax rate of 233.7% on zero profit.

Corporates would be paying 15% if their tax remains the same. So we have two tax rates within the same industry. This is unfair.

If as you say I?m ?rattling a tin? ultimately it certainly isn?t for lawyers.