Similar tax for similar incomes

by Dr Rosalind Beck

15:22 PM, 8th March 2017
About 2 years ago

Similar tax for similar incomes

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Similar tax for similar incomes

Philip Hammond stated in the Budget:

‘A fair system will also ensure fairness between individuals so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax.’

I was very pleased to see this basic principle affirmed by the Chancellor as, logically,  he will now have to reverse Section 24.

In my report on this I pointed out the wide differentials in the treatment of very similar, sometimes identical businesses. The link is below as well as the relevant extract. I would now urge people to lobby both Philip Hammond and Gavin Barwell and show them this very clear table which provides incontrovertible evidence that Section 24 must go!

Click Here to read the full report: SECTION 24 of the Finance (no. 2) Act 2015: “The unjust legislation that will make the UK housing crisis much worse”

19 . The differential tax treatment of similar businesses.

Section 24 aggravates what is already a highly contradictory tax treatment of broadly similar (sometimes identical) housing provision. This can be seen in the following table.

Assuming that each of the property owners in the table received an annual rental income of £200,000 and made annual interest payments of £100,000 on the borrowing costs they incurred in setting up their businesses and other costs (repairs, maintenance, running costs etc.) came to £50,000, each would make a pre-tax profit of £50,000. The table shows how after the full implementation of s24, their tax treatment will be hugely inequitable. For example an incorporated landlord would pay £7,950 in tax whilst the ‘individual’ landlord would pay £33,600. The number of properties in the portfolios and the amount of work involved in running the portfolios would be irrelevant as would the ‘professionalism’ with which they were run. As, historically, the preferred advice to landlords was to set up as ‘individuals’ and not as companies, most portfolio landlords who run highly successful and viable portfolios are in the second category of tax treatment.

report snip



Comments

Mark Alexander

13:45 PM, 8th March 2017
About 2 years ago

The chart shows how ludicrous the change in legislation is but also shows why incorporation is so advantageous.

The problem is that incorporation incurs CGT, Stamp Duty and cost associated with refinancing. HOWEVER, with a careful planning all of these are avoidable. Legislation provides reliefs for CGT for rental properties businesses, with more than 10 properties and there are also ways to incorporate without the need to refinance.

Please see >>> https://www.property118.com/optimal-tax-planning/91857/
.

NW Landlord

15:46 PM, 8th March 2017
About 2 years ago

Great piece of work that and the figures are eye watering they really are

Chris Clare

16:21 PM, 8th March 2017
About 2 years ago

I am going to share this on Facebook but it would be nice if it was updated to account for the drop in tax free dividend from £5,000 to £2,000

Simon Hall

19:12 PM, 8th March 2017
About 2 years ago

Ross your efforts in fighting the effects of Section24 are certainly commendable.

However, my overriding thoughts in today's budget are when Chancellor Stipulated "A fair system will also ensure fairness between individuals so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax."

His assertions will amount to raising Taxes as opposed to reducing Taxes, whilst our argument is arguable nonetheless Chancellor is likely to hit incorporated Landlords same as individual Landlords to "Level the playing field" in a similar manner as Self Employed and Employed National Insurance Contributions" The logic prevail that he should have had level the playing field by bringing Employed person's National Insurance Rate to 1% but he Levelled the playing field by bringing both entities in line with each other.

Remember, his motto is to "Raise Taxes, as opposed to reduce Taxes" therefore in our scenario, if we keep poking him that Ltd Companies have advantage over individual Landlords the easiest picking for him to Level The Playing Field between 2 entities is to bring both in line with each other, therefore he would disallow Mortgage Interest Relief for Ltd Companies Too.

In which case, our only last hope of getting out of this mess will be ditched. My opinion.

Jerry Jones

19:25 PM, 8th March 2017
About 2 years ago

I have emailed John Penrose MP, for all the good it will do.

NW Landlord

19:26 PM, 8th March 2017
About 2 years ago

In my humble opinion there's no way he would do that large build to rent companies wouldn't have it and it would cripple the whole industry it just won't happen as large ltds borrowings would dwarf individuals s24 is in place to in courage ltd company structures not to raise revenue

Steve Wood

19:36 PM, 8th March 2017
About 2 years ago

He's attacking SMEs. Terrible government that will distroy businesses etc. This country is being ruined

Jerry Jones

20:03 PM, 8th March 2017
About 2 years ago

Reply to the comment left by "NW Landlord" at "08/03/2017 - 19:26":

Corporates can raise capital by issuing corporate bonds rather than mortgages, of course.

ginny reid

20:14 PM, 8th March 2017
About 2 years ago

Reply to the comment left by "Simon Hall" at "08/03/2017 - 19:12":

Interesting point. Perhaps someone can clarify something for me.
In my mind, it's only landlords with smallish portfolios that finance themselves with buy to let mortgages.
Now the non-Ltd route is becoming less attractive, LLs will move into Ltd (special vehicle) companies. Large incorporated LL organisations probably don't use buy to let financing (I imagine - please correct me if I'm wrong) so even if HMRC decided to apply the new buy to let tax to Ltd companies, that would leave the very large corporations to benefit/be immune to these potential taxation hits, so only smaller entrepreneurs, trying to secure a pension for themselves get hit?

Charles Mackay

8:05 AM, 9th March 2017
About 2 years ago

Reply to the comment left by "NW Landlord" at "08/03/2017 - 19:26":

Hi NW,

Unfortunately I think you are missing an important difference between large scale corporate build-to-rent and smaller scale buy-to-let.
Financing models will be very different. Corporations won't be using interest only mortgages to fund their builds. They will be putting venture capital to work. This capital comes from investors, so there is no interest to pay. Investors are paid back via dividends / sale of company.

Government disallowing mortgage interest as an expense will simply not effect the big boys.

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