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

Carl31

buglawton wrote: »

According to this:
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11660188/Buy-to-let-tycoon-Fergus-Wilson-I-sold-50-Ashford-semis-to-a-Chinese-estate-agent.html
A job lot of 50 Kent BTL houses was sold to a group of Chinese buyers. The same couple plan to sell the rest (another 900) off to foreign consortia.

Disappointing that the Osborne chose to target small BTL investors. The above seems to show that more BTL incomes will be flowing abroad in future. With much less tax being raised inside the UK that way. Unintended consequences, eh?

Hes probably targetting the small time landlords as they will be most likely to sell up when the going gets tough, the ones that are in it for the easy ride, and not a true business

Anyone who truly runs a letting business shouldn't really be affected by most of the new rules and tax changes, or should be able to adapt their business model. Its the everyday joe that had a few quid lying around to 'get someone to buy me a house'. I suppose the idea being they sell up and free up some stock

cells

buglawton wrote: »

Due to soaring house prices in the SE (I moved from the North 15 years ago) I have never been able to pay down my mortgage and gone interest only. Been effectively renting half of it from the building society, albeit with improving equity due again to those increasingly soaring prices. No scope to downsize though as anything I could downsize to keeps rising too.

So those who think that all people with their names on the Land Registry have it all sorted for retirement, had better check their facts first.

at least you have the option of selling up and moving to one of the much more affordable places like up north. Sell the average average London home and buy the average NE home and pocket the £350,000 difference

Moving from the north to London/SE 15 years ago and buying a house was probably the best financial decision a northerner could have made

cells

buglawton wrote: »

According to this:
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11660188/Buy-to-let-tycoon-Fergus-Wilson-I-sold-50-Ashford-semis-to-a-Chinese-estate-agent.html
A job lot of 50 Kent BTL houses was sold to a group of Chinese buyers. The same couple plan to sell the rest (another 900) off to foreign consortia.

Disappointing that the Osborne chose to target small BTL investors. The above seems to show that more BTL incomes will be flowing abroad in future. With much less tax being raised inside the UK that way. Unintended consequences, eh?

If there is a shift from persons owning BTL to corporates owning BTL (which seems likely as its 40-45% tax vs 18%) then the state long term will lose a lot. Not only will they get less than half as much income tax but corporates will probably hold onto homes for 100+ years whereas most landlords can only hold for 20-30 years due to death/divorce which will mean HMRC will also get some 5x less stamp duty and capital gains taxes too

BananaRepublic

cells wrote: »

If there is a shift from persons owning BTL to corporates owning BTL (which seems likely as its 40-45% tax vs 18%) then the state long term will lose a lot. Not only will they get less than half as much income tax but corporates will probably hold onto homes for 100+ years whereas most landlords can only hold for 20-30 years due to death/divorce which will mean HMRC will also get some 5x less stamp duty and capital gains taxes too

Not sure I follow.

A private individual can buy a second house, and let it out, with an interst only mortgage. They can offset the mortgage interest payments against their personal tax bill, thereby paying less tax, and having a tenant to pay off the mortgage.

A company can buy a house on an interest only mortgage, let it out, and be taxed at eighteen per cent. However, to do so it must surely be a genuine business expense, not a tax dodge. So they cannot be a fruit importer aiming to save money. They could be a lettings company, in which case the income is from tenants, and th mortgage payments are an expense.

There is surely nothing stopping anyone setting up a limited company to buy and rent property. This just mans you can't reduce your personal tax bill at the higher rate using BTL. Seems fair to me.

cells

BananaRepublic wrote: »

Not sure I follow.

A private individual can buy a second house, and let it out, with an interst only mortgage. They can offset the mortgage interest payments against their personal tax bill, thereby paying less tax, and having a tenant to pay off the mortgage.

A company can buy a house on an interest only mortgage, let it out, and be taxed at eighteen per cent. However, to do so it must surely be a genuine business expense, not a tax dodge. So they cannot be a fruit importer aiming to save money. They could be a lettings company, in which case the income is from tenants, and th mortgage payments are an expense.

There is surely nothing stopping anyone setting up a limited company to buy and rent property. This just mans you can't reduce your personal tax bill at the higher rate using BTL. Seems fair to me.

a company pays (soon) 18% corporation tax most landlords pay 40 or 45% income tax both do so on profit after costs including interest.

In the future the company will still be able to use interest as a cost while the individual wont.

What this means is that 100 homes owned outright, or with a mortgage, by a individual, will pay more than twice as much tax as the same owned by a company.

Also the human owner will have to sell at some point if for no other reason than death. At that point a huge capital gains tax bill will get paid. A company by comparison may never sell because companies do not need to die so might 1: never pay CGT and 2: the properties never go onto the open market again. Even if a company does sell a property they would get indexation relief and also pay at 18% rather than 28% CGT for humans

So all in all, for the government for the public its very good news that most the BTLs are owned by people who pay more than twice the tax that the same BTLs in companies would attract

Thrugelmir

cells wrote: »

most landlords pay 40 or 45% income tax both do so on profit after costs including interest.

Where's the evidence of this?

westernpromise

BananaRepublic wrote: »

Not sure I follow.

A private individual can buy a second house, and let it out, with an interst only mortgage. They can offset the mortgage interest payments against their personal tax bill, thereby paying less tax, and having a tenant to pay off the mortgage.

A company can buy a house on an interest only mortgage, let it out, and be taxed at eighteen per cent. However, to do so it must surely be a genuine business expense, not a tax dodge. So they cannot be a fruit importer aiming to save money. They could be a lettings company, in which case the income is from tenants, and th mortgage payments are an expense.

There is surely nothing stopping anyone setting up a limited company to buy and rent property. This just mans you can't reduce your personal tax bill at the higher rate using BTL. Seems fair to me.

I have a feeling corporates can apply depreciation to their income to reduce the tax bill.

If they never sell Chinese stylee there'll never be a CGT payment either.

westernpromise

cells wrote: »

Also the human owner will have to sell at some point if for no other reason than death. At that point a huge capital gains tax bill will get paid.

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.

cells

Thrugelmir wrote: »

Where's the evidence of this?

Well its clear, for a start most rental properties have no mortgage so majority of rental income will be at the marginal rate and the average male working full time earns about £38k so if they have a rental property getting £15k a year its going to push them from £38k to £53k and most that additional rental income would thus fall into the 40% bracket.

Smaller landlords to get a BTL mortgage need a min £25k income (that is a min which means on average it will be more) and to borrow to buy more than a few units you need a min £50k income for most lenders. And most lenders dont allow rental income to form part of those 25-50k min incomes. £50k is already in the 40% bracket.

So clearly its going to be mostly in the 40-45% bracket.

You also then have the truly big landlords eg the wilsons who will be deep into the 45% tax bracket. If their chinese or arab buyers buy their 1,000 homes into a british company they will pay just 18% corp tax rather than 45% income tax.

Likewise the wilsons will pay 28% CGT which might be as high as £60million in tax. Companies wont sell property they will hold it indefinitely and the companies themselves will change hand so no CGT to pay.

cepheus

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.