Chancellor hits landlords for billions! How will this affect your cashflow?

by Mark Alexander

18:24 PM, 8th July 2015
About 4 years ago

Chancellor hits landlords for billions! How will this affect your cashflow?

Make Text Bigger
Chancellor hits landlords for billions! How will this affect your cashflow?

Chancellor hits landlords for billions

How much worse off might you be as a result of the limitations on claiming BTL mortgage interest as a taxable expense?

We’ve built a calculator to help you work it out.

First of all, allow me to explain the issue ….

Tax relief on Buy-to-Let mortgages is to be reduced to the basic rate of tax phased in over four years commencing 2017.

The Bank of England recently reported that Buy-to-Let mortgage balances amounted to circa £200 billion.

Assuming an average interest rate of just 3% that equates to interest of £6 billion a year.

Given that most landlords are likely to be 40% tax payers (or soon will be!) the loss of 20% tax relief for 40% tax payers means that landlords are likely to be around £1.2 billion a year worse off as a result of the Summer 2015 budget.

How much worse off will you be?

Step 1 of 2

50%
  • If you are a 40% tax payer this is how much extra tax you might have to pay. This is not a comprehensive analysis because you may pay some tax at the lower 20% rate and some may even fall into a higher rate bracket.
  •  

    Need some help?

    Before you consider selling up or moving properties into Limited Company structure you need to carefully consider the ramifications of Capital Gains Tax and other tax planning and money saving opportunities available to you. To learn more please click the NEXT button below


Comments

Jay James

18:45 PM, 9th July 2015
About 4 years ago

Tried editing but could not.
Q1a. 100% of mortgage interest will be ducted from income.
Q1a. Mortgage interest will not form a tax liability.
Q2. Higher rate tax payers will find themselves paying 20% (if their highest rate is 40%) or 25% (if highest rate is 45%) of mortgage interest by way of a higher tax bill.

Romain Garcin

18:55 PM, 9th July 2015
About 4 years ago

Reply to the comment left by "Jay James" at "09/07/2015 - 18:45":

Is it really how it will work?

My conclusion was that 'reducing tax-relief to basic rate' meant that for someone in the 40% rate only half the finance costs (not only interests!) will be an allowable expense for tax purposes.

This would mean that you could still have no tax liability if overall all your allowable expenses fully cancel out your rent income.

The way you put it suggests that landlords will have to pay tax on finance costs no matter what.

G Cox

19:01 PM, 9th July 2015
About 4 years ago

Your company could comment as to whether a BTL company could get the same terms as an individual for a BTL mortgage now or later.

Dwayne Creighton

19:11 PM, 9th July 2015
About 4 years ago

Thanks Gents. So basically as a lower rate tax payer I won't be affected by these changes?

Jay James

19:15 PM, 9th July 2015
About 4 years ago

Reply to the comment left by "Romain Garcin" at "09/07/2015 - 18:55":

The calc amounts to the same thing despite that some of my wording could have been better put. (No editing facility for some strange reason.) I can provide a more detailed explanation of this comment if you wish.
--

Is this not what we had a brief exchange about a couple pages ago? Ie paying tax even when a loss has occured?

Jay James

19:15 PM, 9th July 2015
About 4 years ago

Reply to the comment left by "Dwayne " at "09/07/2015 - 19:11":

Yep

Romain Garcin

19:18 PM, 9th July 2015
About 4 years ago

Reply to the comment left by "Jay James" at "09/07/2015 - 19:15":

"The calc amounts to the same thing"

Well, no. It doesn't!

Jay James

19:21 PM, 9th July 2015
About 4 years ago

Reply to the comment left by "Romain Garcin" at "09/07/2015 - 19:18":

I thought what I put under "q2" at 18.45 today would result in the net effect for higher rate tax payers.
If not, please let me know the correct calculation.

Jay James

19:28 PM, 9th July 2015
About 4 years ago

Reply to the comment left by "Romain Garcin" at "09/07/2015 - 18:55":

Mortgage remains allowable for all rate payers.

It's just that if you are a higher are payer, the tax relief is reduced to = that of a 20% payer.

Jay James

19:29 PM, 9th July 2015
About 4 years ago

No editing again!
"Mortgage" should say "mortagage interest" in the comment above.

1 2 3 5

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Tenant fees act - Renewal with higher rent £50?

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More