BTL Tax Reliefs

[Simon Dewsberry]

Gareth

b4 you go off on one - Check this out ..................(then get your accountant to do the same ..............!!!!)

Tax avoidance is the legal utilization of the tax regime to one's own advantage, in order to reduce the amount of tax that is payable by means that are within the law. By contrast tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade taxes by illegal means. The term tax mitigation is also used in some jurisdictions to further distinguish actions within the original purpose of the relevant provision from those actions that are within the letter of the law, but do not achieve its purpose. Some tax evaders believe that they have uncovered new interpretations of the law that show that they are not subject to being taxed: these individuals and groups are sometimes called tax protesters. Tax resistance is the refusal to pay a tax for conscientious reasons (because the resister does not want to support the government or some of its activities). They typically do not take the position that the tax laws are themselves illegal or do not apply to them (as tax protesters do) and they are more concerned with not paying for what they oppose than they are motivated by the desire to keep more of their money (as tax evaders typically are).

NOT my words !!

http://en.wikipedia.org/wiki/Tax_evasion

You going to need a chin guard soon !!!!!

Simon

[J4L]

why do I waste my time. haha

[Matthew]

I see your point Simon, but CPT isn't just 40% of your gain at the moment. It is the gain less about 18K if in 2 peoples names and less 40% if let for 10 years.

We need to realise that we are in theory stealing wealth from people that want to buy, by having properties and renting them out.

I think the money should be made by rent, not capital gain. But at the moment nearly all the profits are on the sale of a property and this is where landlords get tax breaks that "normal people" don't.

For example, a lazy "investor", lets call her Rosy Millard :-) Just buys a property for 100K, hands it over to a letting agent to run and maintain. Starts of as a small loss each year, but as rents increases, starts making a small profit. Lets say in the ten years overall = BreaK-even. The property is sold for 200K.

It is in hers and husbands name, so 18K exempt, gain = 82K. 40% releif, so only taxed on 49K at 40% = 19,600. This amounts to 19.6% Tax.

She has pretty much done nothing for the money and gets to pay low tax.

I concentrate on making profits on renting like any business should and renovate the properties, manage them myself and do everything myself - sacrifice a lot of my weekends, spend time sorting out problems whilst I am on holiday etc. I will get taxed 40% on my profit.

We need to accept that most people are in the business for the capital gains these days and this is the problem. At the very least the releifs need removing.

[odecar]

I agree with you Matthew as we are not wealth creating just utilising existing assets and ultimately the Govt will look at this whole area reduce the reliefs and tax accordingly.

There will be ways out via various means but as the majority of BTLers hold a couple of properties then they will dispose as financially won't be worth their while.

Ultimately it will get amateurs out of the property market.

[GPEL]

Can't believe I'm reading this thread. Is it a wind-up? Stealing wealth from others; complete clap trap. Done nothing for her money; every investment carries a risk. Absolutely unworkable proposition and completely igonores net present value ie what money in the future is worth in today's terms after the effect of inflation etc. Social engineering like this is best kept locked in the cellar, in my opinion anyway...

[pugsy]

I'm with you there. I've never worked and worried so hard in my life!! Passive! Just hand it over to an agent and forget about it for 10 years. Yeah right... Man after 10 years of what i've been through in the last few, believe me, I'll deserve my cut.

[Simon Dewsberry]

Mat

Have you completely lost the plot?

If this is the case then anyone buying shares , pension funds , unit trusts in fact all "city" investments should clearly be subject to the same rules .

In fact at a higher rate as they really have a "no hands on" investment .........

If you want a much more clear illustration of

"We need to realise that we are in theory stealing wealth from people that want to buy, by having properties and renting them out. "

Let us get right to the root of the problem, which means going back a step or three in the equation

Employers "rob" all employees, as not one anywhere in the world is paid their true worth - If they were then what would be the point of employing them ? The employer would make no proift, the business wouldn't flourish and pretty soon they would be out of a job !

Now this should be outlawed immediately - no business should be allowed to make a profit at the detriment to its employees as this is tantamount to stealing ........Interesting scenario ......so now what

All companies to run as co ops

We can get around this and Nationalise everything - Well, i think hindsight will help us steer clear of that one !

or even let communism rule - I'll be off to book my 1 way ticket then.......!

We can't all be prime minister, barristers, brain surgeons, bank managers, dentists etc neither can we all be Landlords !

but if these professions were removed (or far more importantly, the rewards for the effort required, to realise the financial benifits of such professions) then we would have serious problems...............

ALSO if we stop "stealing" and if everyone is owner occupying then there will be no Tenants ...............

It is a Level playing field, we all have access to the same tools - but as everthing else in life

SOME WILL

SOME WONT

SO WHAT

NEXT PLEASE!

I know people who have NO INTEREST WHATSOVER IN OWNING a property

They have no responsibilty for prop upkeep

they can move simply cheaply and easily

they can get a very high standard of accomodation at an affordable cost

they dont worry about interest rates

they enjoy their income

they have far less stress

Let us not foget our German cousins who dont expect to "own" property until they are in their late middle age and renting is the norm.....USA etc

There is a large sector of society who will always need to rent - This must be provided by someone ...........

If becomes non viable or unattractive to LL then that is going to cause a few problems for them...

Your example was far to simplistic - What if the rent didn't cover the mort, a couple of Tenants trashed the house ,never paid the rent and you remort to cover costs, TDS freeze a few bonds(for good) - the market moved against the vendor, the vendor was an individual not a couple, the CG allowance was already used up on "other" investments, and a lot of other realistic every day factors introduced?

That is a very different picture............but much more realistic i think....

I have no guilt whatsover in my quest to better my income and life style - making a profit is not a sin (tax levels on the other hand possibly are!)

Personally I was not born with a silver spoon in my mouth - i have not won the lottery - and i have climbed out of a debt situation that very few people will ever get into ..............

I am something special ......Categorically NO

I work very hard at least 70 hours a week -every week - Now on the basis that i do twice the hours the average person does IS it not fair that i should show at LEAST twice the average income (thats without the overtime!)

So as we are aware that LL provide an "essential service" to the economy and the community at huge risk and effort WHY would we be trying to "kill" them off ?

I was rather hoping the days of "supertax" were to remain on the Monopoly board and nowhere else !

The thought of "superstealtax" does not need encouraging - we have to much of it already.......

Simon

[GPEL]

More thoughts on the topic:

My risk my wealth creation; didn't sign any contract saying I had to generate it for others not able/willing to do it themselves. Running my own business etc I make more than an ample contribution to society with taxes, contributions to charity and so on.

Many of us, similar to choice of shares, look for long term growth, not short term gain. I'm happy with a tickover rent if there are good prospects for capital growth and it's the release of this capital growth that enables further investment.

"Get rid of the amateurs", what does this mean and why. Who decides what is an amateur? Number of properties, years experience; defining this would be open to all sorts of loopholes and easily pulled apart; many so-called experts aren't really. Why get rid of them? Remove bad landlords yes but not those that in someone else's opinion only dabbles in it. They may be good landlords.

Not a very good proposal at all and to be frank ill-considered, but then I'm sure it's a wind-up to provoke thought and with a few cans of cider in me has done so.

[GPEL]

More thoughts on the topic:

My risk my wealth creation; didn't sign any contract saying I had to generate it for others not able/willing to do it themselves. Running my own business etc I make more than an ample contribution to society.

Many of us, similar to choice of shares, look for long term growth, not short term gain. I'm happy with a tickover rent if there are good prospects for capital growth and it release of this capital growth that enables further investment.

"Get rid of the amateurs", what does this mean and why. Who decides what is an amateur? Number of properties, years experience; defining this would be open to all sorts of loopholes and easily pulled apart; many so-called experts aren't really. Why get rid of them? Remove bad landlords yes but not those that in someone else's opinion only dabbles in it. They may be good landlords.

Not a very good proposal at all and to be frank ill-considered, but then I'm sure it's a wind-up to provoke thought and with a few cans of cider in me has done so.

[GPEL]

So good I sent it twice (in error).

[odecar]

I don't think its a wind up and if you look at the way govt (that's in general rather than current) behave is that they live to ensure that big business gets bigger or there are more of them.

Having small landlords just mixes things up as some are in for long term, some short term, some for tax relief etc etc.

In being able to attempt to control the market and whats happening the government would be able to control the big pressure item and thats house inflation which in turn impacts interest rates which big business happy with. One only has to look at the way city bonuses skew the housing market for 3-4 months after they have been paid.

Anybody who believes that governments like the free market needs a reality check as governments like a free market when someone else is holding the power strings.

Some form of control is already happening with HMO's, registering as a landlord with local council, HMRC chasing people not declaring income, some more joining the pieces will occur as many people over last 10 years have made lots of money out of property and Govt wants its share.

[Simon Dewsberry]

If the situation is made intolerable for the "small" LL (what ever that may be !)

Then clearly for the "larger" the level of intolerance wil be larger ..................and for the "massive" LL.................ou know what comes next ............!

I'm am completely with GPEL on this .....although by virtue of making money and paying far more tax than most, we are already paying for others; "less fortunate" and bone idle, lazy spongers

You make your own uck in this world and pay for the privelidge already...

Simon

[Simon Dewsberry]

If the situation is made intolerable for the "small" LL (what ever that may be !)

Then clearly for the "larger" the level of intolerance wil be larger ..................and for the "massive" LL.................ou know what comes next ............!

I'm am completely with GPEL on this .....although by virtue of making money and paying far more tax than most, we are already paying for others; "less fortunate" and bone idle, lazy spongers

You make your own luck in this world and pay for the privelidge already...

Simon

[Matthew]

Can't believe I'm reading this thread. Is it a wind-up? Stealing wealth from others; complete clap trap. Done nothing for her money; every investment carries a risk. Absolutely unworkable proposition and completely igonores net present value ie what money in the future is worth in today's terms after the effect of inflation etc. Social engineering like this is best kept locked in the cellar, in my opinion anyway...

I disagree mate. Doesn't ignore NPV. If the same money was invested in a bank, would you get a tax break of 40% of the gain, NO. It is just taxing the profit, that is all. I don't think that people should get huge tax breaks for just sitting on a property. If it applied to your own property, this would be unfair, as you would not be able to buy another property with the money. BTL is a business, and therefore different.

It is very workable, much more workable than removing the interest relief, which will encourage more empty properties where landlords sit and wait for a huge huge low tax payout. Why is it unworkable? Will just mean that your full gain is taxed, and why not?

Simon, I don't know too much about shares, but I think I would have the same view to remove the releifs.

If you step back and look at it without thinking how much it would hit your pocket, you may see it differently.

[pugsy]

Personally, I'm going to stop reading this thread. Some of these comments are so off base, it's insulting to those of us who graft hard in this business. Again, sitting on a property..? As if...

Bye from me on this one.

[odecar]

Thread has jumped all over the place BUT issue with writing was to ask whether Govt would change UK tax law to screw BTL market.

Personal view is they will change the law over time and reduce the potential profits or at least tax them in a way to benefit the public purse.

LL have a poor reputation and even the good ones have their names tarnished by the bad ones. Anybody who disagrees then think about what a tenant thinks of you if you withhold any of their deposit irrespective if you have treated them fairly while they lived there.

UK has changed from a nation of shopkeepers to a nation of landlords.

[Melboy]

The day Rupert Murdock and F1 Racing car drivers/Private equity investors (I could go on and on and on listing those who legally/illegally avoid tax contribution to Britain)..... contribute to the British Tax System will be the day that I will agree to pay even more tax than I am paying now.

The people hardest hit by the British Tax System are those on low to middle incomes and on PAYE (Fact!).

Mel.

[Matthew]

Fair point Pugsy, I take that back. Reading all the post on here over the last half year, you cerntainly cannot just "sit" on a property for 10 ten years when renting it out.

I am happy how things are re tax on BTL, would make a few small tweaks to Tax system ob BTL, but not significantly. As MELBOY says it is the Tax system as a whole which are wrong, with Private Equity etc paying very little Tax, and buy to let landlords benefit in the same way on CGT.

I was just saying that if the Government want to Tax Landlords more then they would be doing it in the wrong place by removing Mortgage interest relief, a change on CGT would be the way to go.

My reaction was just pure outrage from the idea of removing this releif which would remove all my profits and make all my hard work over the last year pointless, (whereas changing CGT would have less affect (At the moment :-)) but thinking on it more to change CGT too much would not be that fair either.

[plym77]

Firstly, apologies for my delay, I have been away! I have read this thread with some interest .... it is interesting to see peoples different opinions on things - and everyone has the right to one.... and these are my thoughts...

Why should CGT reliefs be available on shares, or business, or other assets... but not property? The investment into property is a business, and it is my personal opinion that it is unjust that a letting business is not afforded the same Business Asset Taper Relief and other benefits of a 'normal business'. Why is it that landlord Jo Bloggs can get an effective 5 - 10% (excluding CGT A/E for this) tax rate on the sale of commercial property after 2 years (providing it has met the criteria), yet Landlord John Smith pays 12% - 24% and it takes 10 years? They are both in property, they are both done to realise a profit (whether income and/or gain), they both carry risk and reward.

Or how about this..... so you take away the CGT reliefs, the taper relief etc, and so £100k gain stands (which would be £41,600 with full taper and A/E x 2)... people stop investing in property as it will become a tax inefficient investment (and low return! see below) compared to everything else... what happens then? There will always be people who cannot buy property... where will they live? As a landlord, would you still invest if there is no tax relief for mortgage interest or capital gains reliefs? when you work out your overall return, after the payment of tax, compared with the problems associated with being a landlord... will it still be worth the hassle? the answer, yes to some, but many will throw in the towel. So the market is flooded with property... would the property prices be affected? As landlords (and private home owners!) this would be a concern. So we stop buying, the market is flooded and no-one to buy the property (yes, some people may now afford to buy but we all know that the BTL's flood the country - will supply outstrip demand? I don't know the answer, but this should maybe be considered).

Also.... taper relief whilst better than indexation is not that great - 10 years for a 40% reduction in the gain.... if no relief - how do you account for inflation on the property?

Do the costs add up? You buy for £100k, mortgage interest say £5k per year (for simplification) for 15 years, cost £75k, 15 years you sell the property for £200 - profit £100k, tax 40% = 40k, therefore £200k profit, less £75 mortgage interest (if there is no revenue deduction for interest - you would need to do your sums to include), less £100 repayment of capital, less £40k tax = negative figure of £15k. 15 years income say £6k pa = £90k, less tax at 40% (as no mortgage interest relief) 54k profit, less the £15k loss on capital = overall profit of £39k over 15 years - £2.6k per year..... on £100k???? what sort of return is that?!

Currently the same situation as it stands would cost you (assuming 2 A/E's available) total tax of £22,640, therefore your cash result to compare is £200,000 - £100,000 capital, less tax of £16640 = 83,360, plus profit on rent (6k rent - 5k int x 15 years) of £15,000 less income tax of £6,000 = overall return of £86,360 = £5,757 pa. Not a remarkable return but an investment consideration.

SO... Reliefs are a good thing that make an investment/business viable.

Whether it is shares or a property should not matter as to whether CGT relief is available. I do however believe that we are still getting a raw deal in comparison to other business, taper relief, ring-fenced losses (only against other rental or carry forward), now the potential mortgage interest relief issue etc. Letting is more than a passive investment, it is an active business and should be recongnised as such. There are so many different opinions and thought processes on this, and the system we have isn't a bad one - but I actually think that with everything a landlord now has to go through (licences, certificates etc etc) this is more and more a business and as such should be considered one! Unlikely to ever happen, but the removal of taper relief to me seems a silly one.... where do you stop???

Anyway... for what it's worth, that is my opinion which isn't set in stone, but is the way that I see it - and I would welcome your thoughts on this subject!

Sherena

[Matthew]

I still think it is fairer to remove Taper releif than the interest. But yes, if they were to do this it should apply to all investments, of course they won't do this.

Removing both would be absolutely ridiculous as your figures show, however the current system shows a profit of £5.8K return per year after tax. However if you only put down 15%, plus say 5% for purchase costs = £20,000. That is a return of 29% after Tax. Pretty sweet?

Especially as on average over the last 10 years, property prices have trebeled, so the profits have been huge, and my figures showed earlier, relatively low tax being paid. However, I agree this is fair in the current environment also taking into account the amount of Stamp duty Landlords have to pay on every purchase, an extra tax for the buy to let business.

Just re-iterating the point I think removing interest relief is crazy, I don't think they should remove taper relief, but if they were going to do one, Taper releif, in my opninion is fairer and Capital Gains is where all the money is made.