Housebuilders share prices plummet post Budget

by Neil Patterson

21:07 PM, 8th July 2015
About 4 years ago

Housebuilders share prices plummet post Budget

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Housebuilders share prices plummet post Budget

Housebuilders share prices fell immediately to post Budget reaction that BTL mortgage interest tax relief will be capped to the basic rate of 20%.shares

Barratt shares fell 5.7%

Taylor Wimpey  shares fell 5%

Persimmon down 4.7%

This is direct instant economic indicator to what the financial markets think about the reduction in tax relief, as no other policies seemed to have such a direct connection to house building.

Far from freeing up the market to make it easier for home buyers, the markets seem to be saying they think less homes will be bought because of a reduction in demand from investors.

Basic economic rules say that if this is the consequence, and less homes are built (supply decreases), but the same number of people still need housing (e.g. demand does not decrease) then the Price (i.e. rents and property values) must increase, all other non-open market factors being equal.

That would definitely not help the housing crisis !



Comments

Appalled Landlord

22:00 PM, 16th July 2015
About 4 years ago

Reply to the comment left by "Tony Atkins" at "09/07/2015 - 16:39":

Hi Tony
Can you please explain what you mean by your statement “However companies can only deduct [interest] at a marginal rate of 20% corporation tax”?

As far as I am aware, companies can deduct 100% of the interest from their gross profit, together with all other allowable expenses (including salaries and employer’s NI contributions), and then pay only 20% corporation tax on their net profit.

matchmade

19:53 PM, 18th July 2015
About 4 years ago

Reply to the comment left by "Appalled Landlord" at "16/07/2015 - 22:00":

Appalled Landlord: we appear to be saying the same thing. If a company pays interest, it can deduct 100% of this from its gross profits, then pays 20% corporation tax, so it is only "saving" 20% of the interest because of a reduced corporation tax bill. In contrast a taxpayer who is already paying 40% income tax on his or her employed income, "saves" 40% of the mortgage interest when it is deducted from their rental income and therefore from their taxable income. This higher-rate personal tax payer who has additional BTL investment income is clearly getting a much better deal from the deductibility of interest than the corporation tax payer or the person only paying 20% income tax.

I am making a comparison between personal income tax rates and corporation tax rates, which Mark claims is a false one, but I still feel is appropriate. Whatever the legal definitions of these taxes, anyone who is the main owner-director of a limited company is bound to feel that since corporation tax is a tax on the company's income, it is therefore effectively a personal income tax too: it reduces the amount of after-tax profits available to be paid out in the form of dividends to the owner.

Appalled Landlord

13:53 PM, 19th July 2015
About 4 years ago

Reply to the comment left by "Tony Atkins" at "18/07/2015 - 19:53":

Hi Tony

The idea that an individual saves 40% of his interest implies that you assume he should pay 40% tax on his whole rent receipts, and “saves” 40% of each cost including interest.

This is an artificial way of looking at a cost. We don’t look at each item and say some landlords are getting 40% relief on the fees they pay to agents, or 40% relief on roof repairs. We don’t say a newsagent is getting 40% relief on his shop’s mortgage interest. We deduct 100% of the costs from the receipts and pay tax on the remainder. So do companies. Some of us pay tax at 45%. Companies pay at only 20%.

Our interest is a cost of doing business just like in any other economic entity. If we hadn’t borrowed we would not have been able to buy our properties and generate taxable income while facilitating the mobility of labour.

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