Politics of Taxing BTL Landlords

csgohan4

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.

Bare in mind currently you don't pay income tax on dividends if your a basic rate tax payer, so only 20% corporation tax is liable with a personal tax credit, effectively you don't pay income tax.


So in real terms a 7.5% increase if your a basic rate tax payer, it's a lose lose tbh, together with IR35 being looked at again and travel/sustenance being banned from some.

csgohan4

Brock_and_Roll wrote: »

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.

Isn't rent like fuel prices, don't go down by much but always goes up. There will always be a demand for rental property because more and more people are being priced out of the property market

Innys1

chucknorris wrote: »

I already have a fair bit in shares, 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 wasn't suggesting you move your whole portfolio from property to shares. Increasing your share portfolio would certainly be an option, though.

Otherwise you may have to consider more risky investments - commodities, foreign currency or even overseas property.

chucknorris

Innys1 wrote: »

I wasn't suggesting you move your whole portfolio from property to shares. Increasing your share portfolio would certainly be an option, though.

Otherwise you may have to consider more risky investments - commodities, foreign currency or even overseas property.

I am already near the marginal point (approx £550k), so adding anything to my share portfolio would incur a higher marginal rate of tax. Obviously I have to consider other possibilities, that is what I originally said (but where to move the equity to), but you responded by saying that I had answered my own question (which I had not!).

Brock_and_Roll

csgohan4 wrote: »

Isn't rent like fuel prices, don't go down by much but always goes up. There will always be a demand for rental property because more and more people are being priced out of the property market

Not sure fuel prices are a great comparison as fuel prices are dependent on global supply & demand for oil along with the" restrictive practices" of OPEC.

The economics is that giving tax relief at 40%/45% is the equivalent of pouring petrol on the fire. By taking away some of the fuel, it should take a bit of heat out of the market. And of course the driving up in prices of properties has been partly driven by BTL demand, so reducing this demand might enable a few more individuals to buy.

buglawton

Over the past 10 years the BTL market has had a sharp effect on housebuilders' confidence at a time when UK banks confidence in borrowers was (still is) low.

I would say that complete developments became viable due to a proportion of surefire BTL sales (and carried blocks of 'affordable housing' in with them).

As a result of this budget move, housebuilders' share prices were typically 5% down (Barratt Development, Persimmon and Taylor Wimpey dropped between 5.7 and 4.7 per cent on one day).
http://www.cityam.com/219773/ftse-despite-hit-uk-housebuilders-budget-reforms-london-report

So the question now is, will new housing supply shrink as a result of this budget move? It sure exaggerates the risk to BTL borrowers of higher interest rates, I think the first effect will be the ever cautious lenders clamping down even tighter on BTL borrowers, knock on effect being lower building levels. The real root issue is of course the cost of well-located land.

Also as a result of the profits squeeze on BTL caused by this budget, I can see more corporate tenancies in future - where foreign companies rent and place their relocated employees.

47% of tenancies in Berks for example are already corporate (sounds a bit unbelievable I'll have to say...)
http://www.telegraph.co.uk/finance/property/11719246/Rip-off-rents-hit-the-Home-Counties-as-unaffordability-contagion-spreads-out-of-London.html

varghesejim

buglawton wrote: »

I think the first effect will be the ever cautious lenders clamping down even tighter on BTL borrowers, knock on effect being lower building levels. The real root issue is of course the cost of well-located land.

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the knock on effect of lower building levels can be compensated by the "starter homes" initiatives and reduction of planning laws to encourage new builds.

ognum

I know lots of BTL landlords and I have a few BTL properties. Most of the people I know like myself own their properties outright. They are not planning for the future they are using their capital in the best way possible. A change to mortgage interest tax will make no difference. It may push their competitions rents up but I have always found that staying below the competition, maintaining property well and treating tenants well has meant I have good tenants and seldom a void. I do not want the last penny squeeEd from my tenants, I want happy tenants who believe they are getting value.

I have never claimed the 10% tax break, I do claim the maintenance that is not a capital expense against tax so no change there so for most LL I know nothing has really changed.

Of course it may change in the future but if I sell my BTLs where do I put the money to create an additional income for my sell. I have shares, a pension and cash asetts?

There are many people like me!

ScorpiondeRooftrouser

jjlandlord wrote: »

This is spin and flawed reasoning.

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

Buy to let is an atypical business. It doesn't produce employment. It doesn't generate wealth. It produces no end good for society as a whole. There's no reason to encourage it.

Innys1

ScorpiondeRooftrouser wrote: »

Buy to let is an atypical business. It doesn't produce employment. It doesn't generate wealth. It produces no end good for society as a whole. There's no reason to encourage it.

So what about the agents, builders, gas engineers etc who do work for BTL landlords?

It does generate wealth for the landlords in the same way that a fund manager generates wealth for their clients. Or are you suggesting fund/investment managers are atypical too?

Students may not agree that BTL produces no end good (whatever that is) for society as a whole. Those on working visas and seconded staff would probably feel the same.