Not a time to be a buy-to-let landlord

cells

westernpromise wrote: »

Not necessarily. I don't intend to sell ever and latest developments are hardening this view. But there'll be no CGT even on death because IHT cancels the accrued CGT liability. So I will leave my property to my children and they will acquire an investment property without paying a penny in transaction costs. The probate value will be their deemed acquisition cost and they'll pay CGT on any gain over that if they should ever sell.

Knock off the IHT allowance and take out £300k of life insurance for £20 a month and that takes care of the IHT.

For most (virtually all) landlords they will have a nice expensive main home which is likely to take up most if not all the IHT threshold.

So leaving a property as inheritance to avoid 28% CGT will just trigger 40% IHT instead.

Taking the Wilson as an example again. Lets pretend (to keep it simple) that they paid off all the mortgages by the time they died. If they left it to their kids, the estate would have to pay 40% of £250 million. Also seeing as how its unlikely they would have £100m spare in a bank account to pay the IHT tax it would likely mean the sale of at least 40% of the properties to pay for the tax.


Compare that to a large listed property company, eg one in germany owns 300,000 properties and is listed. That company might be around for a thousand years and never dispose of a single property. In a thousand years a single property will change owners at least 20-50 times paying stamp duty and CGT each time but maybe 0 times if owned by a company

cells

cepheus wrote: »

Why are BTL landlords so hated?

http://www.bbc.co.uk/news/magazine-35110421

Not sure if it's BTL, but I've just been watching a programme on bailiffs taking back properties for landlords. Most of the tenants are scum sometimes re-renting the properties. They are effectively illegal landlords themselves. However one of the cases involved the eviction of a nurse with four children who can't afford to pay her rent despite working long hours. After living in this country for decades she has given up and gone back to Uganda. The bailiffs were gutted at what they had to do. There's something needed to bring down prices and rents when this happens and the electorate made the biggest mistake in May.

it is cherry picking

a lot (more than half) the country is well below 4.5x full time local male wages. Some places like stoke-on-trent its less than 2 x full time male wage

Rents too in a lot (more than half) the country are very reasonable. eg £500-600 to a month to rent a 3 bed terrace which of course includes maintenance which imo is on a long run average ~£200pm so the property side they are only paying ~£300-400pm

Of course inner London is crazy at £3,000 per month for a terrace but then poor people dont need to live within walking distance of buckinham palace

Graham_Devon

cepheus wrote: »

Why are BTL landlords so hated?

http://www.bbc.co.uk/news/magazine-35110421

From that article, this line appears to sum it up pretty well.

But behind the economics, there is probably something more basic - our need for a home. And when someone appears to be exploiting that need, it causes widespread anger.

Anyone or anything using a shortage of any basic need for their own personal gain isn't going to be the most popular person around. As a BTL landlord himself on that article suggests, the behaviour of other BTL landlords exasperates him....and he's not the only one to have come forward and said that sort of thing. It simply got ruined by all out greed.

We've seen it before with water shortages where people sell water at £5 a bottle. The anger it causes leads to violence.

Thrugelmir

Basic human requirements are shelter, food, warmth. After that everything is a luxury.

Generali

Thrugelmir wrote: »

Basic human requirements are shelter, food, warmth. After that everything is a luxury.

It's a little bit more complex than that:

http://www.simplypsychology.org/maslow.html

Even at the most basic level you have left sex off your list.

After that I'm not sure it's reasonable to describe things at the higher Maslow levels such as friendship, security and self-actualisation to be luxuries. They might not be absolutely necessary to survive the day but the toll on mental health from missing out on those sorts of things is high.

westernpromise

cells wrote: »

For most (virtually all) landlords they will have a nice expensive main home which is likely to take up most if not all the IHT threshold.

So leaving a property as inheritance to avoid 28% CGT will just trigger 40% IHT instead.

But that would get triggered anyway. The point is that if I've got a million quid house that I paid £100k for, and I sell it, I'll pay 28% CGT. Call it £280k for argument's sake. I'm left with £720k and if I die next day I'll pay another 40% IHT as well on that, which is another £300k. That leaves only £420k and if they bought another property with that they're looking at another £20k at least in tax and costs.

If instead I don't sell, my heirs inherit a property on which there is no stamp duty or any CGT to pay. There's IHT based on its probate value, but there's never been an actual sale. So the probate value's going to be managed down to £900k and there's an IHT bill of £360k. I have a life insurance policy that pays £350k (outside my estate so tax free) to my heirs, so they use that the pay the IHT, and they've got a million quid rental property in their names with all tax taken care of.

So the IHT applies in either case - buy my strategy delivers the property to my heirs free of CGT. It then goes back to nil and starts to accrue from scratch. And 70 years from now they do the same thing.

buglawton

I think you've demonstrated nicely what an a$$ the tax laws are.

cells

westernpromise wrote: »

But that would get triggered anyway. The point is that if I've got a million quid house that I paid £100k for, and I sell it, I'll pay 28% CGT. Call it £280k for argument's sake. I'm left with £720k and if I die next day I'll pay another 40% IHT as well on that, which is another £300k. That leaves only £420k and if they bought another property with that they're looking at another £20k at least in tax and costs.

If instead I don't sell, my heirs inherit a property on which there is no stamp duty or any CGT to pay. There's IHT based on its probate value, but there's never been an actual sale. So the probate value's going to be managed down to £900k and there's an IHT bill of £360k. I have a life insurance policy that pays £350k (outside my estate so tax free) to my heirs, so they use that the pay the IHT, and they've got a million quid rental property in their names with all tax taken care of.

So the IHT applies in either case - buy my strategy delivers the property to my heirs free of CGT. It then goes back to nil and starts to accrue from scratch. And 70 years from now they do the same thing.

what makes you think you can buy a life insurance policy of £350k that will cost you less than £350k?

cells

westernpromise wrote: »

But that would get triggered anyway. The point is that if I've got a million quid house that I paid £100k for, and I sell it, I'll pay 28% CGT. Call it £280k for argument's sake. I'm left with £720k and if I die next day I'll pay another 40% IHT as well on that, which is another £300k. That leaves only £420k and if they bought another property with that they're looking at another £20k at least in tax and costs.

If instead I don't sell, my heirs inherit a property on which there is no stamp duty or any CGT to pay. There's IHT based on its probate value, but there's never been an actual sale. So the probate value's going to be managed down to £900k and there's an IHT bill of £360k. I have a life insurance policy that pays £350k (outside my estate so tax free) to my heirs, so they use that the pay the IHT, and they've got a million quid rental property in their names with all tax taken care of.

So the IHT applies in either case - buy my strategy delivers the property to my heirs free of CGT. It then goes back to nil and starts to accrue from scratch. And 70 years from now they do the same thing.

a £1m investment property sold now bought for £100k, will give you £648k after 28% CGT (yes you then run the risk of dieing within 7 years and being taxed twice)

a £1m investment property left at death with no mortgage (above the IHT free pot as you left other valuable things) will give your kids £1m minus 40% IHT = £600k

If transaction costs are zero you would have more left in the first option but the two are close. basically the government isn't stupid if they want a pound of flesh they are going to get more or less a pound of flesh


the idea about life insurance is neither here nor there. You cant buy £350k of life insurance for anything less than £350k. More likely it costs maybe £1,000,000 to buy £350k of life insurance and the difference pays for nice expensive offices taxes bonuses and actuaries. If people could buy £350k of life insurance for £20 a month then we would all be quite rich very quickly

westernpromise

cells wrote: »

what makes you think you can buy a life insurance policy of £350k that will cost you less than £350k?

The fact that I have.

Legal and General, sum assured £300k, monthly premium about £20.

there's another one knocking around for £50 somewhere that I've had for decades and is about £4 a month.