how does the budegt affect BTL?

jjlandlord

I think that in effect it will mean that higher tax payer will only be able to deduct 50% of the interests paid as allowable expense.

So 20k rent and 10k interests will give 15k taxable profit and 6k tax.
I.e. you get 2k "tax-relief" based on the interest, the same as a 20% tax-payer gets on 10k of interest.

molit

So out of interest, what is the situation in the extreme example of say £1000 rent, with a mortgage payment of £1000, so no profit is made? for a 40% tax payer?

Scarlets_mum

Thanks JJLandlord

Seems crazy to me, If you are taxed on an income you should be able to offset against that income the costs that are incurred in that income arising ie the interest relief.

HappyMJ

molit wrote: »

So out of interest, what is the situation in the extreme example of say £1000 rent, with a mortgage payment of £1000, so no profit is made? for a 40% tax payer?

That would be quite unlikely as a mortgage lender in this country wouldn't lend unless the rent covered the interest and there was some left over. Usually for a BTL mortgage (Rent => Interest * 1.25)

A taxpayer cannot claim the mortgage payment....they can only claim for the interest charged on the mortgage account. Assuming you just wrote mortgage payment when you actually meant mortgage interest then the tax due to a 40% tax payer would be £200 per month.....but as I said earlier quite unlikely.

Scarlets_mum

molit wrote: »

So out of interest, what is the situation in the extreme example of say £1000 rent, with a mortgage payment of £1000, so no profit is made? for a 40% tax payer?

Following on from the example given for a 40%tax payer, it would suggest that you can only offset £500 of the interest, leaving you with a profit of £500 upon which you would pay tax at 40% ie £200.

This seems not to be right to me, perhaps we have misunderstood it?

jjlandlord

molit wrote: »

So out of interest, what is the situation in the extreme example of say £1000 rent, with a mortgage payment of £1000, so no profit is made? for a 40% tax payer?

Well, if my previous post is correct (at least in the resulting tax amount) this would lead to £200 tax to pay (same "tax-relief" as a 20% tax-payer).

Yes, it would mean paying tax without having made a profit.

Hopefully the details of this measure will be kinder.

jjlandlord

HappyMJ wrote: »

Assuming you just wrote mortgage payment when you actually meant mortgage interest then the tax due to a 40% tax payer would be £200 per month.....but as I said earlier quite unlikely.

Perhaps but you might also have other expenses so that you did not make any profit or made a loss even if rent was 125% of mortgage payments (which is often an interest only mortgage), and still have to pay tax.

I_have_spoken

Standard 'bait and switch' tactic from a government. Having enticed millions to tie-up private capital to replace council housing it's now been turned into a zero-sum game. Owners of diesel cars will know what it's like to be shafted by HMT.

The next step in hollowing-out the wealth of the middles-classes will be to make sale of primary home subject to CGT

The implicit aim of our government is to tax away 100% of capital value of every private asset within a lifetime.

HappyMJ

How about this example. No job at all just a full time multi-million pound property empire...that's not really that hard 20 BTL properties each valued at £250,000 or even 40 at £125,000 your choice.... £5 million. I rent each one out at £1,250 per month (a fair rate) with an annual income of £300,000. They are all mortgaged to 75% at 6.4% interest. I'd have an annual interest bill of £240,000. Profit being £60,000 and therefore a higher rate tax payer. Tax on £60,000 is £13,400 leaving £46,600. Quite a reasonable return for managing 20 properties. If that person had to pay 20% of the interest as tax then they'd have no cash left.

They could just sell them all realizing £1 million is equity and put it in the bank getting 2% interest.

Thrugelmir

I_have_spoken wrote: »

Having enticed millions to tie-up private capital to replace council housing it's now been turned into a zero-sum game.

Council housing was being sold off well before the event of BTL. BTL was made attractive by the availability of cheap finance. Prior to that letting property on any scale was the preserve of the capital rich.