Politics of Taxing BTL Landlords

TonyMMM

Conservatives know that being a property owner makes you more likely to vote for them ( the reason Mrs T introduced the right to buy in the 1980s) - they see a whole generation now being priced out of the market and the growth of BTL is a factor in that.

So their policy now is about gradually making BTL a less attractive option for investors, thereby reducing competition for houses particularly at the lower end of the market and so freeing up more houses for buyers and taking pressure of prices.

They want to do this without precipitating a wholesale house price crash which is tricky so has to be done very slowly , but I would expect to see further similar measures gradually announced over the next few budgets.

jjlandlord

This is politics. It is all about spin, and give and take.

BTL landlords are an easy target because they attract little sympathy.

However, what was announced is still rather prudent and we will see when (or even if) it is implemented.

Certainly if the aim is to encourage building of more housing this is going in the wrong direction.

BTL does not create the shortage of affordable housing, it was created by it.

Old_Git wrote: »

home owners don't get tax relief on the mortgage ,why should a landlord.

This is spin and flawed reasoning.

All businesses get tax relief on interests of financing loans, why shouldn't BTL landlords?

Innys1

I have a smallish portfolio and only one loan of around £100k. This change will encourage me to pay that off well before April 2017, which is feasible.

Other, highly geared landlords are in for a rough time - perhaps they should have been a bit more prudent with their borrowings. Indeed, I have enough equity to consider snapping up the properties other landlords may have to offload.

As I posted elsewhere, I suspect other prudent landlords, will do the same. Plus, I'll be raising rents because the market rate is inevitably going to go up. I reckon that's not really what Osbo had in mind.

chucknorris

Innys1 wrote: »

I have a smallish portfolio and only one loan of around £100k. This change will encourage me to pay that off well before April 2017, which is feasible.

Other, highly geared landlords are in for a rough time - perhaps they should have been a bit more prudent with their borrowings. Indeed, I have enough equity to consider snapping up the properties other landlords may have to offload.

As I posted elsewhere, I suspect other prudent landlords, will do the same. Plus, I'll be raising rents because the market rate is inevitably going to go up. I reckon that's not really what Osbo had in mind.

I'm thinking that it might soon be time to sell up soon (at least partially), we don't have a large mortgage either (only about £675k on £5.5m total portfolio value). Our investment properties are in London, where I suspect that there may be a higher % of investment properties than elsewhere, and I think this may dampen future London HPI, as it will be less attractive to new investors. The other side of the coin of course is that rents will have upward pressure, so I won't be making any rash decisions, it is time to let the dust settle and think things through.

Additionally, losing the generous 10% wear and tear will also reduce profits, but where to move the equity to? Tax on dividend income was also hit in the budget.

euromike

jjlandlord wrote: »

This is spin and flawed reasoning.

All businesses get tax relief on interests of financing loans, why shouldn't BTL landlords?

because the right policy is to have rental flats/houses provided by actual businesses, not hundreds of thousands of amateur landlords

Innys1

chucknorris wrote: »

I'm thinking that it might soon be time to sell up soon (at least partially), we don't have a large mortgage either (only about £675k on £5.5m total portfolio value). Our investment properties are in London, where I suspect that there may be a higher % of investment properties than elsewhere, and I think this may dampen future London HPI, as it will be less attractive to new investors. The other side of the coin of course is that rents will have upward pressure, so I won't be making any rash decisions, it is time to let the dust settle and think things through.

Additionally, losing the generous 10% wear and tear will also reduce profits, but where to move the equity to? Tax on dividend income was also hit in the budget.

Tax was reduced on dividend income to zero for the first £5k of dividends and then 7% up to a figure, I can't recall what that figure is.

£5k is a hell of a lot of dividend income tax free. 7% above that is still cheap. You'd need a substantial share portfolio to start to pay high rates of tax on divi income. I think you've answered your own question.

Innys1

euromike wrote: »

because the right policy is to have rental flats/houses provided by actual businesses, not hundreds of thousands of amateur landlords

Is it? What difference would that make to those poor sods trying to get on the housing ladder?

chucknorris

euromike wrote: »

because the right policy is to have rental flats/houses provided by actual businesses, not hundreds of thousands of amateur landlords

I certainly consider myself a professional (not an amateur), but what you are saying doesn't make sense. The new tax rules apply to everyone, whether they are professional or amateur (not that it would be easy to distinguish between the two anyway).

chucknorris

Innys1 wrote: »

Tax was reduced on dividend income to zero for the first £5k of dividends and then 7% up to a figure, I can't recall what that figure is.

£5k is a hell of a lot of dividend income tax free. 7% above that is still cheap. You'd need a substantial share portfolio to start to pay high rates of tax on divi income. I think you've answered your own question.

I already have a substantial share portfolio, and if we invested our property equity in addition to that, our dividend income (at 3.5%) would be about £140,000 per annum. So I don't think that I have answered my own question.

I think that you have misunderstood the incoming rules, everyone gets the first £5k tax free, then basic rate tax payers pay 7.5%, higher rate tax payers will pay 32.5%, then additional rate tax payers will pay 38.1%. So you only pay 7.5% on the difference between the basic and higher rate tax bands.

Brock_and_Roll

I think there are connecting issues here. Allowing tax relief at 40/45% makes BTL investment relatively attractive for higher earners compared with other investments where there is no such relief.

As such more money flows into BTL, increasing demand and by extension, prices and rents. By forcing up rents, this increases the Housing Benefit bill. So by removing the tax relief at the higher rate the government can ague that not only is it "levelling the playing field" in terms of investment, but also reducing rents and saving taxpayers money.

Of course it remains to be seen what the economic effect is and how landlords react. Economic theory says that if you reduce the "subsidy", demand will fall. As demand/price for BTL falls, yields will rise. As yields rise, rents should fall to reduce yields back to "acceptable" levels compared with other possible investments.