Summer Budget 2015 – Landlords Reactions

Has anybody produced a calculator for this new proposal, if it’s the same then it can’t be watered down. I just don’t understand it enough to make well thought out judgement but I know I’m a higher rate taxpayer paying 40-45 % on my property profits. I’m looking into incorporating in the next few days before the stamp duty deadline, this will help from a tax perspective but should I be doing it if things will change or not be as bad?
For everyone who’s done it. Can I claim back all my invested funds via the directors loan approach, if i incorporate the ‘Cotswold way’ as I can if I transfer the properties via a solicitor, is the accounting the same as a normal ltd company?

Reply to the comment left by “Kevin Thomson” at “16/03/2016 – 21:00“:

Hi Kevin

If your only other income was interest or dividends they would not be included in total income for the purpose of calculating the tax reduction/relief. It just means that you would be in the same position as those landlords who have no salary or pension income.

In such cases the finance costs will be compared with the deemed profit minus the personal allowance. If the latter is higher, you will get 20% relief on the full finance costs.

However, if the deemed profit minus the personal allowance is lower than the finance costs you will only get relief on that lower amount. And, according to last July’s Policy Paper, you will not be able to carry the difference forward as “excess finance costs”. Therefore it is important that you make a real profit that at least equals that year’s personal allowance and/or draw some pension income/get a job.

You can see the effect of the restriction on relief by downloading the spreadsheet from the top of this page and putting your own figures in the red boxes of the Calculator sheet. It applies the result of the comparison of the 3 amounts as described in the Policy Paper.

Reply to the comment left by “Appalled Landlord” at “16/03/2016 – 23:44“:

Appalled Landlord, Mark Alexander had posted earlier that, effect of Clause 24 have been watered down but I can no longer see the link. As per my understanding and I also spoken to couple of shrewd investors and they seem to think that, Clause 24 will apply on those, who will be naturally higher rate tax payers i.e. not with addition of Gross Rent at the top of salary which pushed them into higher rate payer but those who are already a higher rate payers!

This is allegedly a U-Turn by government.

Hello everyone

I am in the bracket of basic rate tax payer who will be pushed into the higher bracket could really do with this clarifying as I am about to send all my stuff over to Cotswald. Obviously If I don’t have to do it I won’t bother how vague can this govenment be playing with people’s lives.

Reply to the comment left by “Simon Hall” at “17/03/2016 – 07:23“:

Hi Simon

Mark did not post that C24 has been watered down, he asked if it had been, after seeing something on Facebook: https://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-793/#comments at 23.00.

I cannot see anything in the “clarification” that confirms what your sources said:
https://www.gov.uk/government/publications/clarification-to-finance-costs-restriction-for-landlords/clarification-to-finance-costs-restriction-for-landlords

Reply to the comment left by “Appalled Landlord” at “16/03/2016 – 23:44“:

A L

According to the explanatory notes, the balance of any relief on finance costs that would have been allowed, but which has been limited by insufficient rental income, or by insufficient total income above the threshold, can definitely be carried forward into subsequent years. (See Para 21)

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/445521/EN_FB_2015.pdf

As far as I can see, the ‘explanatory note’ that was published yesterday is mostly just a very clumsily worded confirmation of the ‘least of three’ rule. The rule is nothing new or surprising. It just means that:

a) You can’t claim tax relief (or in future, a tax credit) on more than your total property income;

b) You can’t claim tax relief (or in future, a tax credit) on more than your total taxable income for that year (i.e. total income above the annual income tax allowance threshold, minus any other expenses);

c) You can’t claim tax relief (or in future, a tax credit) on more than the value of your finance costs.

The other (far simpler) way of looking at it is that you can only claim a tax credit on the basis of tax that you actually paid on your rental income and costs that you actually incurred in financing the property – just like claiming tax relief now.

I don’t see any evidence of a ‘climb-down’, but equally, I don’t see any insidious attempt to stop people from carrying their costs over from year to year either. I think the complex wording of the rules is simply down to the fact that the ‘relief’ is going to be managed as a tax credit, rather than a deduction. In theory, if the rules weren’t tight enough, then people could start claiming the tax credits on tax that they hadn’t actually been liable for in the first place.

Is it surprising that UK PLC’s productivity is so low, given the complex bodge to fix another bodge in totally flawed legislation?

Work for a whole army of accountants and tax investigators, and for clever people to evade or avoid tax.

That scumbag could have achieved far more by limiting LTVs progressively over the past 5 years as required, rents would not have to have gone up as they are, and avoided the riots he is so fright of!

Test

Completely left field idea here and have not thought through any of the consequences yet, but would it be possible to treat mortgage interest as a cost of purchase rather than revenue expense? It would then offset against CG tax in the future.