Shocked Chancellor orders landlord tax scrutiny

Shocked Chancellor orders landlord tax scrutiny

16:36 PM, 10th April 2012, About 10 years ago 24

Text Size

Shocked Chancellor George Osborne has ordered a closer scrutiny of buy to let tax reliefs after finding out that some of Britain’s richest landlords pay little or no income tax.

The Chancellor was shown redacted copies of tax returns with all personal data removed, and naively realised that instead of paying around a third of their income in tax, many were handing the tax man just 10% or less.

These were 20 of the highest earners in the UK – and their tax saving strategy was completely legal and led to ‘lost’ tax revenue of £145 million a year.

Osborne has promised to take further action to make the richer pay more.

The legal loopholes exploited by these high net worth individuals included standard landlord tax saving strategies of offsetting trading losses from previous tax years and charging business loan interest to their buy to let properties.

Both are standard property tax avoidance steps – and are completely legal.

For landlords who are not harnessing these strategies, here’s how to do it:

  • Setting off prior year losses – Any money spent on readying a buy to let property for letting that is not a capital cost can be included in the first year accounts. Refurbishing a letting property generally adds up to more than the first year’s rents and creates a trading loss.

    His loss can be carried forward to use against future profits. For example:

    A landlord spends £10,000 readying a home to let. In the first year he has rent of just £3,000 and other expenses, like letting agent costs, insurance, gas certificates etc of £2,000. The rental profit is £1,000.

    Deduct the profit from the £10,000 loss and carry forward the £9,000 balance to set off against the next rental profit, and so on until the whole amount is spent.

    Claiming loan interest – Many landlords do not realise they can claim any loan interest spent for their letting business against rents as well as buy to let mortgage interest.

    For example, a landlord spending £2,500 on a personal credit card on fitting a new bathroom as a direct replacement for an old bathroom can claim the interest against the letting business.

    Landlords can also refinance a buy to let business to repay any cash ‘lent’ to a letting business as a deposit to buy a rental property – and then set off the interest against rent.

    This borrowing could also a letting business overdraft repaying the landlord’s investment.

“I was shocked to see that some of the wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right,” said the Chancellor.

“The general principle is that people should pay income tax and that includes people with the highest incomes.”



Comments

by Roy B

6:19 AM, 15th April 2012, About 10 years ago

My accountant and the Inland Revenue are happy with it.

by

11:20 AM, 15th April 2012, About 10 years ago

I agree with you a 100%

I would also add that if landlords are paying a mortgage or a loan they are also providing proffit to the bank so the money invested in buy to let is making a lot of other business to grow.

The property will need money invested to be let out. e.g. gas certificates, EPC's, electrical test, repairs, white goods, furniture, etc

One thing the government should look at is to abolish the freehold system so people buying flats own the land too.  Or change the law so people can buy the land without having to pay such a high costs for enfranchisement.  It is not fair that people buy a long term rental agreement and the landlord still owns the land.  Most of the cases the landlord is a foreign company based in the BVV.  They collect the ground rent from all these properties (millions of pounds) that go abroad so the people bought the property, they don't own it and have to buy a new lease again when the period expires.  Also, people sometimes buy property as a way of income for retirement but they don't realised is not their property but just a long letting agreement that if it does not increase in value won't produce the expected result.
This medieval system makes people poorer after they have paid all their live for a property that does not belong to them.

by Paul Shears

17:25 PM, 15th April 2012, About 10 years ago

The property in question was an existing buy-to-let that I purchased that had been very badly maintained.
I bought no new bathroom or kitchen nor did I build an extension.
Neverthess less the preparation for rental costs thousands including maintenance on a boiler that failed after I bought the property, threadbare carpets replaced, fixing the leaking bath & replacing worn out taps that caused damage to the lounge ceiling below, painting throughout etc etc.
If I had not done this I would have only got "No-hopers" as tenants.
The property had been previously rented out by the last landlord for years with no maintenance done.
I have a second property which is more extreme and will need a new kitchen & bathroom before tenants can move in.
From this blog it appears that some landlords have successfully claimed all the above as maintenance whilst others have not tried to claim due to the advice that they have seen.
The reference book, "Understanding & Paying Less Proprty Tax For Dummies" by Steve Sims is repeatedly quite clear that the above expenses are maintenance and as such, can be claimed against income tax providing there is no additional functionality (adding a bidet for example) or excessive quality improvement (extemely expensive carpets or wallpaper for example).
Additionally the author goes on to give examples of how this maintenance sourced loss can be carried forward for some years if necessary.
I'd appreciate anyone else's thoughts on the re-renting of an existing buy-to-let by a new landlord.

by

13:49 PM, 16th April 2012, About 10 years ago

True.

The word “Fairness” is stuck on every act of income redistribution like a supermarket price label. Those who question the recipients’ needs are branded “callous”.


Leave Comments

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

Forgotten your password?

BECOME A MEMBER