BTL ..... who should pay?

Thrugelmir

IveSeenTheLight wrote: »

Thruglemir, you obviously are an intelligent business minded person, successful in your specific business.

BTL is however a completely different type of business.
It's not a stack of cards, you are over simplifying it I think to try and make your point.

As for taxation rules, yes they can change, they did last year when capital gains changed to a flat rate 18%. Many on here thought that would be the catalist for BTL to sell up, it wasn;t.

The tax rules that we are talking about is income tax.
If that is to change then it will change for everyone.

Puting it simply, Income tax is to be paid on profit from renting out the property, therefore it makes good BTL sense to keep the mortgage interest high, thus increasing the costs.

Why do this?
Because it means that less profit is taxed.

Why would you do this as you essentially want profit?
How does your business grow?
The profit is then released from the property by way of the mortgage thus this is how the moeny can be re-invested without incurring Income Tax

Note: I personally do not follow this, however I run just a small BTL business and follow a different business model to reduce my risk.

For my sins. I've spent my life in finance. Across a spectrum of Companies and Organisations.

BTL is not different. Whatever a business does or how it does it. The fundamentals are the same. To make a profit. Either in income or capital gain.

In order for a BTL property mortgage to be discharged. The investment needs to generate an after tax profit to repay the capital debt. Thats a fact that inexperienced BTL investors overlook. Basing a return on historic capital growth alone is a pure gamble. Whilst returns have been exceptional in recent years they are not sustainable. I've yet to see one reasoned post as to how prices could possibly increase at a high rate in the next 10 years.

To achieve capital repayment of the mortgage the property needs to generate an increasing level of rental income. As the offset of interest progressively diminishes as the interest reduces. Most BTL mortgages are on an interest only basis. So exposing the mortgage to risk of high interest rates.

As an immediate tax generator I would reduce the offset of interest against rental income to 75%. As the Irish have done. Had quite an impact on property prices too! Capital gains. A rate of 25% can't be out of the equation after the next budget.

It is a stack of cards for those that built mini empires on no capital. I'm talking about 5 plus properties in this context. I don't regard one or two properties as a business.

dgl1001

Thrugelmir wrote: »

There are far cheaper ways of providing social housing than BTL speculation. As is happening locally here. A housing association has bought a 500 house development direct from the developer. Cheaper to buy than rent for them.

Not true. Affordable housing is subsided by the government at about £40k per house. The private BTL sector generates a receipt through tax returns. The housing association deal is the exception rather than the rule. I would be very surprised if all the housing would be "affordable".

abaxas

IveSeenTheLight wrote: »

Tenants pay the costs i.e. mortgage maintenance, etc (keeping it simple)

LOL comedy post of the week.

Thrugelmir

JonnyBravo wrote: »

How will I acquire my next property? Who said I'm going to anytime soon? Why do you assume every landlord wants 300 properites? I'm happy letting it pay itself off thanks..... and yes that includes capital.

Why 300 indeed.

Unmortgaged property worth a £1 million in total. Could produce you a pre tax income of around £50k a year. Good but not exceptional. As by no means guaranteed.

You've missed my fundamental point that most BTL is on interest only mortgage basis. So how does the capital get repaid?

In simple terms. If the capital isn't repaid how does somebody else borrow the money to buy it? Thats the point the banks have reached on a macro level. Debt has to be repaid at some point.

Thrugelmir

dgl1001 wrote: »

Not true. Affordable housing is subsided by the government at about £40k per house. The private BTL sector generates a receipt through tax returns. The housing association deal is the exception rather than the rule. I would be very surprised if all the housing would be "affordable".

What tax receipts? Its tax efficient not to generate taxable profits according to posters on here.

mewbie_2

JonnyBravo wrote: »

Your stance, frankly, makes you look stupid, whereas of course all you really want to get across is you don't agree with it morally...... I suspect.

Absolutely nothing to do with morals. In my opinion it was a gamble that worked in 2003/4, was dodgy in 2005/6, and senseless from then on. I am very open to figures and proof that it works (for newcomers), as a sensible and safe income generating investment.

I am not really interested in the "I bought mine for tuppence anecdotal". I am interested in the here and now - does it work, does it make sense. When I am convinced that it works, and is worth a punt - I might even go for it.

In a way an ideal use of the forum - to show people whether it can work with a full set of sensible figures against real example properties. There are plenty on Rightmove, and plenty of experts with experience on here.

You see - I am not interested in stats and graphs - they can 'prove' anything. But a property with a price, and sensible rental expectations (although they are only expectations of course) plus some realistic costs (in and out) - well that I would find interesting.

For now I reckon it doesn't work.

JonnyBravo

Thrugelmir wrote: »

Why 300 indeed.

Unmortgaged property worth a £1 million in total. Could produce you a pre tax income of around £50k a year. Good but not exceptional. As by no means guaranteed.

You've missed my fundamental point that most BTL is on interest only mortgage basis. So how does the capital get repaid?

In simple terms. If the capital isn't repaid how does somebody else borrow the money to buy it? Thats the point the banks have reached on a macro level. Debt has to be repaid at some point.

Ok thanks nice post.

You too must then acknowledge that BTL can be managed well and some individuals do pay off capital. Also that like minded individuals will keep BTL ticking over at lower levels than boom time a few years ago. I shan't of course..... I'm sticking with my one for the forseeable!

JonnyBravo

mewbie wrote: »

For now I reckon it doesn't work.

And I reckon you're right on most property for sale. But not all.

But then I'm not looking for a BTL so am not researching this. Good luck in your hunt for your elusive investment.

Thrugelmir

JonnyBravo wrote: »

Learn to see the world for the shades of grey that really exist.

I've experienced the darkest black in business. Which helps in keeping events in perspective and not surfing merrily away while there's a great white beneath the surface.

I've learnt to expect the unexpected. Complacencey is dangerous in troubled times.

PS. I respect other peoples views and opinions and will readily change mine.

Thrugelmir

JonnyBravo wrote: »

Ok thanks nice post.

You too must then acknowledge that BTL can be managed well and some individuals do pay off capital. Also that like minded individuals will keep BTL ticking over at lower levels than boom time a few years ago. I shan't of course..... I'm sticking with my one for the forseeable!

Of course some BTL's are well managed. My comments are based on the wider issue of people that have no understanding or concept of running a business on a professional level. They are a danger to us all.