The Budget

movilogo

The way I see changes for BTL,

Now BTL landlord gets £1000 in rent, pays £400 mortgage interest so pays tax on £600 profit (assume no other deductions). Tax would be 40% of 600 or £240. So, net in hand = 1000 - 400 - 240 = £360

In new rule, if the landlord is not a basic rate tax payer, will pay tax on whole of £1000 rent (like for like).

As he is higher rate tax payer, so he would end up paying £400 as tax. So end of day, he would only keep 1000 - 400 - 400 = £200 in hand.

All new landlords (who bought their BTL properties recently) will be pretty much screwed then (of course only if they are not basic rate tax payers - where the old rule still prevails).

Gavin234

Wait a min, the Ben cap is only for non workers? Those working have not got that cap?

theEnd

cells wrote: »

about the same as my assumption too

I suspect this is to tax the micro companies more rather than anything to do with dividends as a whole as anyone buying shares would probably be buying in an ISA or a pension anyway and they are exempt.


So if someone currently pays themselves a wage of £10k an a divided of £25k their tax bill just went up £1,500 which is quite a substantial difference.

it hits the big earners even more. Say someone paying themselves a £1m dividend their tax bill goes up by some £75k more in tax.

I suspect one unintended consequence will be that perhaps people keep the profit in the company and then close it and pay capital gains at 10% rather than take dividends at 32.5% or 38.1%

I've worked through my own example, which is 8k wages, plus £83k divd (keeping wages, plus divd, plus tax credit below 100k to avoid losing the normal allowance) and I'm about 3.5k worse off. Will get some of this back via the corp tax reduction and now can take a slightly higher divd, without hitting the 100k.

Also makes service companies (for the sake of it) and IR35 somewhat redundant. Corp tax + new divd tax getting very close to ENI + NI + Income tax.

It's kind of sensible!

afly

cells wrote: »

about the same as my assumption too

I suspect this is to tax the micro companies more rather than anything to do with dividends as a whole as anyone buying shares would probably be buying in an ISA or a pension anyway and they are exempt.


So if someone currently pays themselves a wage of £10k an a divided of £25k their tax bill just went up £1,500 which is quite a substantial difference.

it hits the big earners even more. Say someone paying themselves a £1m dividend their tax bill goes up by some £75k more in tax.

I suspect one unintended consequence will be that perhaps people keep the profit in the company and then close it and pay capital gains at 10% rather than take dividends at 32.5% or 38.1%

I think another will be people deciding that the risk of running a small business is no longer worth it vs the safety of PAYE employment. 1.5k tax increase for the lowest band!?

Mass closures of small businesses can't look good for the government?

cells

theEnd wrote: »

I've worked through my own example, which is 8k wages, plus £83k divd (keeping wages, plus divd, plus tax credit below 100k to avoid losing the normal allowance) and I'm about 3.5k worse off. Will get some of this back via the corp tax reduction and now can take a slightly higher divd, without hitting the 100k.

Also makes service companies (for the sake of it) and IR35 somewhat redundant. Corp tax + new divd tax getting very close to ENI + NI + Income tax.

It's kind of sensible!

but why would you pay yourself that way and pay close 32.5-38.1% in divi taxes when you can keep it in the company for a few years. close it up and pay capital gains tax for entrepreneurs which is afaik 10%

keeping wages, plus divd, plus tax credit below 100k

if you dont mind me asking what tax credit are you talking about?

Gavin234

Gavin234 wrote: »

Wait a min, the Ben cap is only for non workers? Those working have not got that cap?

Is this correct?

cells

movilogo wrote: »

The way I see changes for BTL,

Now BTL landlord gets £1000 in rent, pays £400 mortgage interest so pays tax on £600 profit (assume no other deductions). Tax would be 40% of 600 or £240. So, net in hand = 1000 - 400 - 240 = £360

In new rule, if the landlord is not a basic rate tax payer, will pay tax on whole of £1000 rent (like for like).

As he is higher rate tax payer, so he would end up paying £400 as tax. So end of day, he would only keep 1000 - 400 - 400 = £200 in hand.

All new landlords (who bought their BTL properties recently) will be pretty much screwed then (of course only if they are not basic rate tax payers - where the old rule still prevails).

I dont think that correct but am at a loss as how its calculated

cells

Gavin234 wrote: »

Is this correct?

thats been how it is and nothing different was said today

so yes if you work it does not apply

theEnd

cells wrote: »

but why would you pay yourself that way and pay close 32.5-38.1% in divi taxes when you can keep it in the company for a few years. close it up and pay capital gains tax for entrepreneurs which is afaik 10%

I thought this was difficult to continually do? I'm in the process of doing it for the first time, but that's a 15 year old company and for a legitimate reason.

cells wrote: »

if you dont mind me asking what tax credit are you talking about?

All dividends come with a 10% tax credit, which is currently included as your earnings for thresholds etc.

Take a £10k dividend, and it counts as £11.111k income with 10% tax already paid. You make up the difference of the 32.5% tax on the £11.111k = another £2.5k.

michaels

Graham_Devon wrote: »

The rent reductions seemed to be a bit pointless. Quite a bit was made about them before the budget by the media.

1% each year for 4 years? Not going to make any difference to anything really.

Wonder if it was watered down last minute as there was much furore in the press about how it would reduce rental prices and see people pushed out of the homes.

But this assumes the rate would otherwise be frozen for the period - my understanding was HB was caulcauted based on the 30th centile private local rent so if rents increase won't this potentially hit quite hard?

movilogo wrote: »

The way I see changes for BTL,

Now BTL landlord gets £1000 in rent, pays £400 mortgage interest so pays tax on £600 profit (assume no other deductions). Tax would be 40% of 600 or £240. So, net in hand = 1000 - 400 - 240 = £360

In new rule, if the landlord is not a basic rate tax payer, will pay tax on whole of £1000 rent (like for like).

As he is higher rate tax payer, so he would end up paying £400 as tax. So end of day, he would only keep 1000 - 400 - 400 = £200 in hand.

All new landlords (who bought their BTL properties recently) will be pretty much screwed then (of course only if they are not basic rate tax payers - where the old rule still prevails).

I thought it was just that releif would be limited to 20% for all tax payers so a higher rate taxpayer would pay 20% tax on the mortgage interest amount which was previously not taxed as a business expense? So in your example the standard rate taxpayer would pay 20% on the 600 'profit' and a higher rate taxpayer would pay 40% on the 600 profit plus 20% on the 400 interest?