how does the budegt affect BTL?

PeterBalham

Ajith86 wrote: »

I am a small investor and have 5 buy to let houses.. If I form a limited company and sell these houses to the company, will the loss of mortgage relief still affect the company? I am aware of stamp duty, higher accountant fees that I will incur? I am also aware that there is no capital gains allowance for a company.....
I am a higher rate taxpayer.
Thank you for your help.

I have talked to my accountant about the budget changes.


When you buy a property through a company you get "indexation relief" . However when you sell the property you pay Corporation Tax on any gain above this allowance. You also pay tax on any dividend received.


Suppose you paid £100 for the property and sold it 15 years later for £200. If inflation was 2% for this period over 15 years that amounts to about 35% with compounding


So first you would pay (200-100-35)*18%= £11.70 in corporation tax.


The company now has 88.3 available for a dividend


If you are a 40% tax payer you would then pay tax on the this at the new rate of 32.5%


88.2*32.5% = £28.7


So a total of 40.40 in tax. =11.70 corporation tax + £28.70 income tax


In you own name you would just pay 28% of the gain of £100=£28.

martinsurrey

PeterBalham wrote: »

I have talked to my accountant about the budget changes.


When you buy a property through a company you get "indexation relief" . However when you sell the property you pay Corporation Tax on any gain above this allowance. You also pay tax on any dividend received.


Suppose you paid £100 for the property and sold it 15 years later for £200. If inflation was 2% for this period over 15 years that amounts to about 35% with compounding


So first you would pay (200-100-35)*18%= £11.70 in corporation tax.


The company now has 88.3 available for a dividend


If you are a 40% tax payer you would then pay tax on the this at the new rate of 32.5%


88.2*32.5% = £28.7


So a total of 40.40 in tax. =11.70 corporation tax + £28.70 income tax


In you own name you would just pay 28% of the gain of £100=£28.

The thing is, you're forgetting about the time benefit of the company.

You sell a property outside of a company and you HAVE to pay the 28% CGT on sale, less your annual allowance.

You sell in a company and you pay the 11.7% effective corp tax (from your example) and then you decide when and how to extract the funds.

You could do share buy backs through the company every year and keep the gains under £10k and pay no further tax, you could reinvest the funds and then pull them out after you retire and are no longer a 40% tax payer, paying a reduced marginal tax rate.

A company offers MUCH more flexibility in how to control the funds and reduce the timing and amount of tax paid.

MJ12

There is a petition to reverse the tax on BTL mortgage interest on parliament.uk "Reverse the planned tax relief restriction on ‘individual’ landlords"

Petition 104880

I can't post links as a newbie. May be someone can help put the link here.

booksurr

MJ12 wrote: »

There is a petition to reverse the tax on BTL mortgage interest on parliament.uk "Reverse the planned tax relief restriction on ‘individual’ landlords"

Petition 104880

I can't post links as a newbie. May be someone can help put the link here.

if you are a HR taxpayer why should you be given relief? The policy is a reasonable idea as far as I'm concerned, individual LL or multi LL matters not. You can afford it.

MJ12

I absolutely agree that people making a profit should pay taxes. The profit you make is the amount of money you get MINUS the amount of money you spent getting that money in the first place. The interest, and I stress the interest, on the mortgage is a cost of getting to that profit.

How is it fair that you pay tax before you even turn a profit?

mik82

Maybe you feel it's not fair


However the societal shifts caused by the BTL explosion could also be viewed as unfair. Indeed this may be one element of why the tax relief is being reduced. A nation of renters will not vote Tory. The government doesn't care if some landlords get repossessed or go bankrupt. They want tax, and re-election.


There are plenty of other unfair aspects of government and taxation.

Innys1

mik82 wrote: »

Maybe you feel it's not fair


However the societal shifts caused by the BTL explosion could also be viewed as unfair. Indeed this may be one element of why the tax relief is being reduced. A nation of renters will not vote Tory. The government doesn't care if some landlords get repossessed or go bankrupt. They want tax, and re-election.


There are plenty of other unfair aspects of government and taxation.

Quite right. There's loads of things I'd change about the Govt and taxation but that's the cost of living in a democracy.

By the way, I'm a BTL landlord too.

martinsurrey

mik82 wrote: »

Maybe you feel it's not fair


However the societal shifts caused by the BTL explosion could also be viewed as unfair. Indeed this may be one element of why the tax relief is being reduced. A nation of renters will not vote Tory. The government doesn't care if some landlords get repossessed or go bankrupt. They want tax, and re-election.


There are plenty of other unfair aspects of government and taxation.

What has been announced is a tax on small time and accidental landlords.

Anyone with serious skin in the game will have incorporated a long time ago and will be licking their lips as small time investors pull out so they can snap up the cheaper rental properties (or the supply of rental property's falls, and they can raise their rents).

I don't think anyone disagrees that something needs to happen, but this is a poorly constructed piece of legislation (increase tax on sole trader, decrease tax on corporate).

Daniel54

MJ12 wrote: »

There is a petition to reverse the tax on BTL mortgage interest on parliament.uk "Reverse the planned tax relief restriction on ‘individual’ landlords"

Petition 104880

It's a poorly presented petition which I wouldn't endorse even if I were minded to ( which I am not)

https://petition.parliament.uk/petitions/104880

It mis-quotes Paul Johnson of the IFS,who said rental property is more highly taxed than owner occupied ( CGT) and not that landlords are more highly taxed than owner occupiers

http://www.ifs.org.uk/uploads/publications/budgets/Budgets%202015/Summer/opening_remarks.pdf

Secondly,there are significant tax reliefs for those saving for retirement in the shape of pensions and ISA's.In this context ,BTL is just another unwrapped investment and not well suited to be a major source of retirement funding.Special pleading on behalf of those who are relying on rental income for retirement from leveraged borrowing on property diminishes rather than enhances the case

Government is withdrawing or has withdrawn individual tax reliefs in several areas.None of them are particularly "fair" but it is no surprise to see BTL caught up in this net.

brit1234

MJ12 wrote: »

There is a petition to reverse the tax on BTL mortgage interest on parliament.uk "Reverse the planned tax relief restriction on ‘individual’ landlords"

Petition 104880

I can't post links as a newbie. May be someone can help put the link here.

Yes we have to save the greedy landlords.



Landlords have to be allowed to buy up all the properties and pay no tax. After they are a business, they contribute something to society they think is positive maybe its their style:



Save the greedy, sign the petition, landlords have the right to deny home ownership to our and future generations. :rotfl: