Summer Budget 2015 – Landlords Reactions

Reply to the comment left by “Mark Alexander” at “12/07/2015 – 23:38“:

Hi Mark

Jason has brought up an important factor which had been ignored up to now.

Previously everyone on this forum had assumed that the tax relief would be 20% of the finance costs.

However, HMRC’s description states that it is 20% of the lower of the finance costs or the profits of the property business in the tax year.

Therefore I have revised my calculation of earlier today. I will continue to use the 40% rate for simplicity:

Today the tax due on zero is zero.

In 2021 the tax calculation would be 40% of £75,000 i.e £30,000.
The tax payable would be £30,000 less the tax relief of £15,000 that you show, making £15,000. So you would have made zero profit, but would owe £15,000 on it. This means that you will suffer a cash outflow of £15,000 which you will have to make up from another source. This is your extra contribution to paying off the National Debt.

In 2021 if interest had increased to £100,000, the tax calculation would still be 40% of £75,000, i.e £30,000. The tax relief would be 20% of the lower of the finance costs (£100,000) or the profits of the property business (£75,000).

The latter is the lower, so the tax relief would still be £15,000, and you would still owe HMRC £15,000. But your portfolio will have made a loss of £25,000, so you will suffer a cash outflow of £40,000 which you will have to make up from another source.

HMRC’s description states that any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year.

It does not define how the excess is calculated. Presumably it is £100,000 minus the £75,000 on which the relief is calculated. Presumably it can be used in a later year when the property profit exceeds the finance costs.

Please see my latest article and comments linked below
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Reply to the comment left by “Appalled Landlord” at “13/07/2015 – 00:41“:

My brain hurts now!

One thing is for sure, more landlords are going to have to employ the services on an accountant and those who don’t have a very slim chance of completing their tax returns correctly!
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Reply to the comment left by “shakeel ahmad” at “12/07/2015 – 23:47“:

Shakeel I hope this will be the case. And when even Mark Is questioning as to how this travesty will work out I feel my lack of understanding is understandable!

What a can of worms George Osbourne has uncovered. What leftie Marxist in the Treasury came up with this one? And does he realise how many landlords will NOT vote Tory next time?

Reply to the comment left by “Jason E” at “12/07/2015 – 23:28“:

Hi Jason

Thanks for bringing this further restriction to light.

However, I don’t understand how you arrive at the figure of £6,523 for tax in 2021, as I make it £15,000. Would you show the calculation please. .

Reply to the comment left by “Gary Nock” at “13/07/2015 – 00:47“:

I’m still glad I voted Tory.

I think tax relief on BTL mortgage interest would have been scrapped completely under any other government.

I also think the Tories will make a better job of reacting to the lobbying of landlord groups and implementing concessions necessary to avoid another credit crunch. See my comments on my latest article (linked below) to read my thoughts in regards to the concessions I think they may consider.

This isn’t over yet, not by any means!
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Reply to the comment left by “Mark Alexander” at “13/07/2015 – 00:53“:

Mark I may well sleep a little easier tonight even at this hour!

Reply to the comment left by “Mark Alexander” at “12/07/2015 – 23:38“:

Hi Mark

It was an afterthought to my previous posting, but it occurred while the latter was just about to go live. I wasn’t replying to myself, I just wanted to connect the
afterthought to my previous posting.

The reason for posting it was to bring home the fact that we can no longer console ourselves if we make a loss that we can carry it forward, because the Chancellor will turn our losses into profits by magic, or should that be by sleight of hand?

But following a closer reading of the proposed rules following Jason’s revelation, it turns out that it will be possible to carry unused finance costs forward

Reply to the comment left by “Appalled Landlord” at “13/07/2015 – 00:47“:

I’m not an accountant so feel free to point out any obvious errors!

Scenario 2
100K income from property
0K other income
25K costs
75K interest

75K Taxable income
£10,600 tax free
£31,785 taxed @ 20% = £6357
£32,615 taxed @ 40% = £13046

total tax before relief = £19403

Tax relief given on lowest of
a) Interest = £75K
b) Taxable profit = £75K
c) Taxable Income – allowance = £75K – £10,600 = £64,400

20% relief on £64,400 is £12,880

total tax £19403 – £12,800 = £6,523

Now that we have had a few days to digest the implications of these draconian changes I wonder whether one of our learned community could put together an email we could use as the basis for one we could personalise to send to our own MPs as we did before with the Woolwich/Skipton matters?

I can put one together myself of course but whilst keeping it succinct I don’t want to miss anything out and I’m sure someone else would make a better job of it than I would – It’s so important we get it right . . . . anyone please?