Today's budget...

[MrBen]

....has a few surprises.

Reducing tax relief for BTL landlords to the basic rate over 4 years will be a serious check to that market - and arguably one much needed.

Reducing corporation tax to 18% though? It's already low at 20% for a G7 country....

[Earl Aelfheah]

The reduction in tax relief on BTL is well overdue and seems to make sense.

[????]

mimimum wage higher tha Ed pledged

Non-Dom status to go

....he's a lefty*

*if we ignore working tax credits

* uni funding

* Kids allowance stopped at 2

[Jeremy]

Slashing of BTL tax relief... sounds good in theory for buyers who feel squeezed out by investors.

But at the same time, quite a few tenants might see themselves booted out so the landlords can sell - or even find their rents shooting up when the landlord realises that their tax bill is actually higher than their profit.

[????]

Jeremy Wrote:

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> Slashing of BTL tax relief... sounds good in

> theory for buyers who feel squeezed out by

> investors.

>

> But at the same time, quite a few tenants might

> see themselves booted out so the landlords can

> sell - or even find their rents shooting up when

> the landlord realises that their tax bill is

> actually higher than their profit.

But it's not a slash it's over 4 years - it will change behaviour at the margin and over time and should ease pressure on FTBs as well as remove a tax break that overrtly favoured the relatively wealthier and especially those who are higher rate tax payers (I think a fair few retired BTL probably arent). It's sensible.

[MrBen]

Just checked what it means for me on my old flat...and my ?90 tax per month on the marginal profit I make now becomes ?450 tax per month....putting it firmly into loss making position.

It's a very sensible policy to put brakes on BTL - people will sell up for sure.

[Jeremy]

Exactly... will put the brakes on BTL. Lots of landlords will sell.

[MrBen]

Are you an IT contractor paying yourself a low salary and the rest in dividends?

If so...you've just been clobbered.

[Jeremy]

About time! All these guys earning 150K a year and paying 15% tax was really quite annoying...

[MrBen]

The worst excesses of that have gradually passed...they're probably paying 25 to 30% now. Only the odd Aussie still chancing it with some dodgy offshore umbrella to get 80% plus take home.

[MrBen]

Their travel and subsistence allowances have also been removed...quite right when they're commuting to the same office everyday from home and buying lunch from Pret like every other office employee.

[Blah Blah]

MrBen Wrote:

-------------------------------------------------------

> Just checked what it means for me on my old

> flat...and my ?90 tax per month on the marginal

> profit I make now becomes ?450 tax per

> month....putting it firmly into loss making

> position.

>

> It's a very sensible policy to put brakes on BTL -

> people will sell up for sure.

But is it really a loss? I thought the whole idea of BTL is that you get a mortgage on another property and get a tenant to pay that mortgage off for you.

[miga]

Yeah, I don't get that either, how can tax on profits make you lose money if it's less than 100%?

[Loz]

miga Wrote:

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> Yeah, I don't get that either, how can tax on

> profits make you lose money if it's less than 100%?

It's not a tax on profit, though. At the moment, if you charge ?1000 a month rent and have interest on your mortgage of ?800, then you can deduct that mortgage interest (plus any other expenses like insurance, repairs, etc). Basically, like any business. Rent - costs = profit. Profit is then taxed at the going rate.

So I can't work out how this is going to work. I'm not sure where your tax rate comes into it - can anyone explain?

Anyway, if you are renting in London, expect your rent to rise over the coming years. If this forces BTL investors out of the market, taking supply out of an already badly supplied market will only have one outcome.

[Henry_17]

The reduction in mortgage interest relief is a welcome step but obviously does not go far enough in that if owner occupiers get zero deductions against income then BTL owners should also get zero.

The far greater discrepancy with regard to housing taxation though is capital gains, due to the ludicrous and inequitable private residence relief. Everyone accepts that capital gains should be due on sale of a second property yet for some reason nothing is due on gains on sale of the first. All gains should be taxed, particularly given that the bulk of them arise due to property market inflation not value add, and at least part of the revenue earmarked to effect better housing policy, and probably for the education budget as well.

[Blah Blah]

Yeah that's my logic too Loz. Short term it might help first time buyers get a property, but long term it will further squeeze supply in the rental market, unless those properties are bought by cash buying landlords of course. But having said that, it's not a measure to solve any housing problems is it. It's a measure to claw in more tax.

[Loz]

Henry_17 Wrote:

-------------------------------------------------------

> The far greater discrepancy with regard to housing taxation though is capital gains, due to the

> ludicrous and inequitable private residence relief. Everyone accepts that capital gains should

> be due on sale of a second property yet for some reason nothing is due on gains on sale of the

> first. All gains should be taxed, particularly given that the bulk of them arise due to property

> market inflation not value add, and at least part of the revenue earmarked to effect better housing

> policy, and probably for the education budget as well.

Well done, Henry - in one fell swoop you will have made it impossible for 90% of home owners to move house (never mind buying somewhere bigger to raise a family), instantly hampering the mobility of the UK workforce.

File that idea under "How to make the housing problem worse".

(PS Am loving the standard left-wing add-on of trying to make it more palatable by earmarking revenue to 'acceptable' spending causes. The UK rarely, if ever, ring-fences revenue in this way. I always laughed at the way the proponents of the 'Robin Hood' tax earmarked the proceeds to their favourite 'good causes'. Their website was a hoot.)

[indiepanda]

Loz Wrote:

-------------------------------------------------------

> miga Wrote:

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

> -----

> > Yeah, I don't get that either, how can tax on

> > profits make you lose money if it's less than

> 100%?

>

> It's not a tax on profit, though. At the moment,

> if you charge ?1000 a month rent and have interest

> on your mortgage of ?800, then you can deduct that

> mortgage interest (plus any other expenses like

> insurance, repairs, etc). Basically, like any

> business. Rent - costs = profit. Profit is then

> taxed at the going rate.

>

> So I can't work out how this is going to work.

> I'm not sure where your tax rate comes into it -

> can anyone explain?

I imagine it's going to be that the income you get (rent) will be taxed at your marginal rate - which for most BTL landlords I expect is going to be 40%, but the interest that can be offset again this tax liability won't be 40% of the interest, it will be restricted to the basic rate - i.e. it won't be a standard profit calculation.

It sounds like a good idea in the long run in as much as it might put some potential BTL landlords off entering into the market / encourage them to sell and give others the chance to buy their own home.

What it does in the short term rather depends how worried landlords are about losing good tenants if they try to increase rent at the next contract end date... not as if enough properties are being built that the tenants have lots of other places to go if all landlords try to maintain their current levels of profit...

[Henry_17]

Loz,

Why do you think a capital gains tax on primary residence gains, that applies equally across the market, should make it impossible for people to move house? Particularly one for which the revenue is used to effect better housing policy, policy that for example under the current scenario would by definition include policy and funding to increase supply of housing stock?

[Loz]

Henry,

Imagine you have a household income of, say 2x?30k=?60k and a house in ED which you bought at ?250k but is now worth ?500k. You want to sell and buy a similar house in North-west London, as you have a new and better jobs there. So you sell for ?500k, profit ?250k. But you now have to hand over ?50k (at 20%) of that in CGT, so now you only have ?450k and can't afford that house on the other side of London and you have to stay where you are. Goodbye mobility, goodbye better job.

The other issue you will have is around the hypothecation you proposed. I suspect the real reason behind your taxing idea is to calm property prices, so if you are successful, you actually won't have any CGT money to do all the wonderful things you earmarked the money for. If you aren't successful, you get the mobility issues.

So either way, the policy fails.

[miga]

Loz Wrote:

-------------------------------------------------------

> miga Wrote:

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

> -----

> > Yeah, I don't get that either, how can tax on

> > profits make you lose money if it's less than

> 100%?

>

> It's not a tax on profit, though. At the moment,

> if you charge ?1000 a month rent and have interest

> on your mortgage of ?800, then you can deduct that

> mortgage interest (plus any other expenses like

> insurance, repairs, etc). Basically, like any

> business. Rent - costs = profit. Profit is then

> taxed at the going rate.

>

> So I can't work out how this is going to work.

> I'm not sure where your tax rate comes into it -

> can anyone explain?

>

OK, I've just spent a few minutes reading about this, and I think that how much relief you get depends not only on your rental income but on your total income. So in that example if your day job + rental income puts you in the 40% bracket, the interest after relief is ?480. In 4 years' time it will be ?640.

Which all makes the current system seem very suitable for highly leveraged speculation.

[Henry_17]

Loz,

The extreme situation we have now where it is common that people of that income should be sitting on gains of that amount has arisen over time due to many factors of which you are aware including inadequate planning, loose monetary policy, and in my view but not yours the tax anomaly under discussion. Agreed that if the anomaly were immediately addressed in the way you describe i.e. aggressively in one swoop, then it would lead to issues as per your example. But it needn't be addressed in such an aggressive manner, rates could be brought in over time, starting at a low level, and perhaps incorporating a degree of taper relief as used to apply in other areas. As long as it were brought in in a measured manner, given it would impact the entire market, it shouldn't lead to major issues.

The real reason behind my proposition is not directly to lower prices as you suspect, although lower prices or at least less aggressively booming prices could well be a desirable side effect. The reason behind it, is that it is inequitable for one generation who happen to own homes when they are cheap and when supply and demand is in balance, to enjoy large gains at the expense of a subsequent generation, particularly when those gains have mostly not arisen due to value added activities of their own, but rather mainly due to poor planning policies and as a side effect of loose monetary policy. It is not generation one's fault that they have enjoyed these gains, but it doesn't follow that they should enjoy them tax free, they should be taxed and used in via housing policy to address the inequity between them and generation two.

[????]

So, a radical budget.....leads to a discussion on property prices (only on the EDF)

[edhistory]

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords

That's the tax relief withdrawal.

See also para 1.192 of the Red Book for withdrawal of the 10% tax deductible furnished property allowance.

[DaveR]

Re BTL tax changes, is there anything to stop people transferring title to a ltd. co., or interposing a company as head lease holder, to retain the tax benefits?