Budget 2020 – Landlord Reactions

by Property 118

14:11 PM, 11th March 2020
About 7 months ago

Budget 2020 – Landlord Reactions

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Budget 2020 – Landlord Reactions

Chancellor of the Exchequer Rishi Sunak’s first Budget speech concentrated on bringing stability and security to the country using £12bn of fiscal action to combat the temporary effects of Coronavirus. The NHS was promised whatever resources it needed to tackle the virus with a £5bn response fund put aside.

For individuals Statutory Sick Pay (SSP) will be extended for those advised to self-isolate, and those caring for others who self-isolate, and support through the welfare system for those who cannot claim SSP, as well as a hardship fund.

Support for businesses includes expanded Business Rates reliefs, a Coronavirus Business Interruption Loan Scheme to support up to a further £1 billion lending to SMEs, a £2.2 billion grant scheme for small businesses, and a dedicated helpline for those who need a deferral period on their tax liabilities.

The budget was also huge in terms of fiscal investment into the economy with more than £600bn to be injected into infrastructure over the next 5 years.

For more direct policies affecting landlords, the property market and taxation the Chancellor confirmed:

A Stamp duty surcharge of 2% will be applied to non-UK residents purchasing property. However, this will not affect UK Ltd companies where shareholders may live abroad.

Corporation tax as previously announced will not be reduced further and will remain at 19% to help fund the NHS.

The National Insurance contributions threshold will be increased from £8632 to £9,500 saving just over £100 per year.

Entrepreneurs relief will be reduced from a £10m to £1m life time limit per person

£12bn will be available for affordable housing including Social housing

The Building Safety fund will receive £1bn to tackle all forms of unsafe high rise cladding

£643m for action to reduce rough sleeping providing accommodation and support services to help people off the streets.

Fuel duty has been frozen once more this year along with all alcohol duties.

Please use comments below to express Landlords’ reactions to this budget.

As of 6th April 2020 private landlords (including Members of Partnerships and LLP’s) will not be able to treat any of their finance costs as a business expense. This includes both interest and arrangement fees. Instead, they will receive a tax credit of just 20% of their finance costs in order to reduce their tax bill.

CASE STUDY

This Case Study explains why so many property rental business owners are considering incorporation, by comparing the tax position of a private landlord vs that of a private hotelier:

  • Let’s assume that both businesses own assets worth £2,000,000 and have 75% LTV mortgages secured on them at an interest rate of 5%. In other words, their annual finance cost bill is £75,000.
  • Now let’s assume that both businesses make profits after finance costs and all other expenses of £50,000.

The hotelier will pay £7,500 of income tax. This is broken down as follows; £nil on his first £12,500 of net profit and 20% tax on the next £37,500.

However, the private landlord cannot treat his finance costs as a legitimate cost of business in the same way as the hotelier. Accordingly, his tax bill is £27,500.

This is because his taxable income is treated as being £125,000 due to being unable to claim his finance costs as business expenses. Furthermore, for every £2 of taxable income over £100,000 he loses £1 of his nil rate tax band.

Accordingly, the landlord pays tax at a rate of 20% on the first £37,500 (which equates to £7,500) and then 40% tax on the other £87,500 (which equates to £35,000). This adds up to a whopping £42,500.

The government then grant him a tax credit equal to 20% of his finance costs, in other words £15,000 off the £42,500 leaving him with a net £27,500 of tax to pay.

To summarise, the private landlord pays nearly four times as much tax as the private hotelier, even though their financing costs and business results otherwise produce identical levels of actual profit.

HOWEVER, if both the landlord and the hotelier operated their businesses within a Limited Company structure, they would pay exactly the same amount of tax.

Incorporation Viability Analysis Software

  • Price: £ 97.00

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Comments

Whiteskifreak Surrey

15:55 PM, 11th March 2020
About 7 months ago

"The NHS was promised whatever resources it needed to tackle the virus with a £5bn response fund put aside." That is comforting to hear. He obviously forgot to add that NHS is getting £350m a week, as promised on the red bus...

MasterG

17:23 PM, 11th March 2020
About 7 months ago

Reply to the comment left by Whiteskifreak Surrey at 11/03/2020 - 15:55
Nobody ever said the NHS would get £350m a week though, did they? The comment on the bus said it 'could be spent on the NHS' which is true. I've got a fiver in my pocket, I could buy you a beer, but I'm not going to. The point, well made, was that we, the UK, could choose where that money was spent. If you failed to comprehend the meaning, that says more about you than the leave campaign. Anyway, enough about Brexit, we've left.

Whiteskifreak Surrey

17:46 PM, 11th March 2020
About 7 months ago

Reply to the comment left by MasterG at 11/03/2020 - 17:23To be precise it said "Let's fund our NHS instead" . Even my local MP believes firmly in it and tried to convince me that Government is giving even more that that. One big LIE.https://waterfordwhispersnews.com/2018/04/10/where-are-they-now-the-brexit-bus/

Mike D

18:19 PM, 11th March 2020
About 7 months ago

Reply to the comment left by Whiteskifreak Surrey at 11/03/2020 - 15:55The bus said, Let's fund our NHS instead, it never said it would get ALL of the £350 million a week.....

Simon Hall

18:59 PM, 11th March 2020
About 7 months ago

Reply to the comment left by MasterG at 11/03/2020 - 17:23
Well said MasterG, this man is ever so bitter. All his comments are rarely constructive but complete bitter sarcasm. Granted, we have all taken brunt with the emergence of Section 24 but having constant bitter tantrums achieves nothing.

Whiteskifreak Surrey

0:05 AM, 12th March 2020
About 7 months ago

Reply to the comment left by Simon Hall at 11/03/2020 - 18:59
Mr Hall, if you read a few of my comments you would have known I am a woman, ha ha ha. Yes, indeed, I am called a Queen of Sarcasm. Apart from that I am waiting for a constructive comment on the Budget 2020 subject. So far nothing (except sort of glorification of Brexit). At least, gentlemen, I provided you with some entertainment / a person to moan about! :o) The time ahead seem to be rather grim.

Mark Alexander

2:23 AM, 12th March 2020
About 7 months ago

The 100% reduction in business rates will be very useful for commercial landlords and developers who are doing commercial to residential conversions.

Dr Richard Holland

10:15 AM, 12th March 2020
About 7 months ago

Any ideas how you convert letting business into hotelier business ?

Charles Pilton

9:17 AM, 14th March 2020
About 7 months ago

Back in June 2018 the Government announced that NHS funding would be increasing by £20.5 billion in real terms over 5 years. That alone is £394 million per week.
In the recent budget the Government committed a further £6 billion over the course of this Parliament plus a £5 billion fund for the coronavirus.
So, on the face of it, it seems as though the £350 million a week "promise" has been more than fulfilled.

Steven

9:54 AM, 14th March 2020
About 7 months ago

Reply to the comment left by Whiteskifreak Surrey at 12/03/2020 - 00:05The Bus, like the entire 2016 referendum campaign, was misleading and/or ill-informed. In the end after 3.5 years of brazen and hubristic advertising to all European countries what lays before them if they try to exit, Brexit happened because we were faced with the lesser of two unattractive options - cut your hand off (Brexit with Boris) or both your legs off (Corbyn) and in the end the majority decided they still quite like walking and with one hand can at least still hold a pint at the end of it. 2016/17/18/19 just ended up making us sadly and unnecessarily desperate come December 2019. Personally, I'd like to have kept two hands and so been able to hold my wife's hand as I enjoy my pint, and maybe have enough to buy her a new dress, me a new suit and us a car or a holiday, or maybe another property, which the increase in property values would have provided had we just not had the Referendum to start with. Moreover our economy would be in a stronger position after the past 3.5 years, and the next 10, to cope with one off unforeseen events...

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