Similar tax for similar incomes

by Dr Rosalind Beck

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

Similar tax for similar incomes

Make Text Bigger
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

money manager

12:43 PM, 9th March 2017
About 2 years ago

Reply to the comment left by "Simon Hall" at "09/03/2017 - 10:19":

Quite. We might be best advised for fora like this to go "underground" as I have been quite impressed bysome of the moves that have headed of our strategies at the pass so to speak. For example the reduction in the MPAA from £10000 to £4000 and now the dividend allowance reduction both of which we intended to fully utilise.

I am still convinced that small scale incorporation is the sitting duck of a strategy and that a varied, sliced and diced approach tailored for each person will be the way to optimise damage limitation. Raising capital in another business and repaying a drirector's loan is an obvious one as is having a captive maintenance company charge costs at a level common in the SE.

Kathy Evans

14:17 PM, 9th March 2017
About 2 years ago

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

I'm still wondering who the Tories think will vote for them in the future, - perhaps just the centrist Labour liberals - but even they'll be paying more tax on their share dividends and the mortgage on their undergraduate kids' flats. None of it makes any sense at all. The maths is wrong,; the logic is wrong; it's not vote winning. Even the Sun hates it.

Darlington Landlord

23:00 PM, 9th March 2017
About 2 years ago

Reply to the comment left by "Kathy Evans" at "09/03/2017 - 14:17":

They are no doubt counting on the gerrymandering effect of the planned reduced number of MP's constituancies making boundary changes plus the traditional tory policy of do the unpopular changes at the beginning of a parliament and trot out the bribes in the last year or so hoping we have all forgotten - no chance!. Although for some tory councils (surrey) they are more equal than others when it comes to cuts!

Jilly G

19:50 PM, 10th March 2017
About 2 years ago

Sorry to be pedantic but, as I understand it, dividends are not tax free - they are zero rated and add to your overall income.

Chris Clare

9:57 AM, 13th March 2017
About 2 years ago

Jilly that is correct it is really a bit of a scam because it uses up any allowance you may have, so therefore can put you either into tax or up to a higher rate.

You can be just under the tax threshold take you your "tax free dividend" and then be puzzled why you have a tax bill, even though the dividend is tax free the income it has pushed up is not and therefore you end up owing HMRC for what was otherwise income below tax. You have to laugh!

Kathy Evans

13:09 PM, 13th March 2017
About 2 years ago

This article discusses the differences between "take home" as a sole trader and a Ltd Co (doesn't take into account landlords) give NI and dividend tax changes: http://www.accountingweb.co.uk/tax/business-tax/budget-impact-on-incorporation-decisions

1 2 3

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

Do Housing Associations have a responsibility?

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