New landlord tax changes

ognum

OhSoStupid wrote: »

Hi Ognun

Thanks for your reply.

The current rules for tax credits is that income from all sources is taken into account.

Income from employment plus income (net yearly profit) from rental property.

I work full time but earn a modest wage. The BTLs (two) are both low value and achieve low rent. Therfore we still qualify for tax credits (3 children).

When the new rules are fully implemented, instead of using the net profit figure, I will have to use almost the full rental income as the figure.

e.g. Rent £3,500 per year, mortgage £1,500 per year (interest only, which will no doubt increase next year) Normal costs £500 i.e insurance, ground rent etc. Under current rules this leaves about £1,500 profit which we pay tax of £300 on. This £1,500 is added to my income from employment and used to calculate tax credits entitlement.

Under new rules only the normal costs are deducted from the rental income. Therefore £3,000 will be the figure used as my rental income and added to my employment income. So for tax credits calculations my income has been exaggerated because i don't actually earn £3,000. I earn £1,500. Roughly apply these figures for both rental properties. This makes our rental income £6,000 (used for tax credits calculation) when we only benefit by about £2,400 (after tax)

We ideally wouldn't have either of these flats but as they are both in significant negative equity, we can afford to sell and fund the shortfall.

I live in a mortgaged property, and the value is now probably matching the outstanding mortgage (it was in negative value as well).

The flats are only one bed properties so not really suitable for us to live in. Our home is only 2 bed but we make the most of it.

Hope this explains our situation better?

Thanks for this reply, I understand a bit more now.

Life does seem to have dealt you a poor hand or somehow you have not understood the housing market. To have three properties all in negative equity, with short leases etc, is that bad luck or bad planning?

You do have the transitional change until 2020 to sort out the mortgage interest situation, maybe you should just sell and get what you can.

I like others who I feel have been a bit rude and harsh feel a bit surprised that you are being supported by tax credits when you own three properties but you didn't create the system you are just living in it and as such that is what will happen with the future changes.

All I can do is wish you luck to get this muddle sorted.

OhSoStupid

marksoton wrote: »

Based on those figures that's £67 PW rent and £28 PW Mortgage.

And that's before your obligations as a landlord to maintain or interest rates moving. And as you're interest only you need a payment vehicle.

You've stepped on a bus you need to get off i'd say. And pretty damn quick.

I agree, we don't want the properties. We had them before we married, thought it would be a good idea to keep them at the time. When values crashed we realised our mistake. Beauty of hindsight! As soon as we can offload them with no shortfall, we will. However this is unlikely in the near future.

marksoton

OhSoStupid wrote: »

leveller2911 wrote: »

I just feel losing tax credits when my actual income has not increased is quite harsh.

Some lenders won't take tax credits ( or only a proportion of them) into account when assessing someone for a mortgage on where they want to live alone. You've had it good pal.

( FYI i've never received a penny of CTC or WTC)

OhSoStupid

ognum wrote: »

Thanks for this reply, I understand a bit more now.

Life does seem to have dealt you a poor hand or somehow you have not understood the housing market. To have three properties all in negative equity, with short leases etc, is that bad luck or bad planning?

You do have the transitional change until 2020 to sort out the mortgage interest situation, maybe you should just sell and get what you can.

I like others who I feel have been a bit rude and harsh feel a bit surprised that you are being supported by tax credits when you own three properties but you didn't create the system you are just living in it and as such that is what will happen with the future changes.

All I can do is wish you luck to get this muddle sorted.

Thank you for your kind words. I do regret us keeping the properties so you could call that bad planning. I am fairly philosophical about it all. I have a job and lovely family, that is the main thing.

Tax credits are to support lower earners, which i am. I am technically insolvent because of the properties. Is not like i am asset rich!

leveller2911

marksoton wrote: »

OhSoStupid wrote: »

Some lenders won't take tax credits ( or only a proportion of them) into account when assessing someone for a mortgage on where they want to live alone. You've had it good pal.

( FYI i've never received a penny of CTC or WTC)

Not quite sure what you're trying to say Mark. Is that comment aimed at me or the OP?.You qouted me quoting the OP which is confusing.

OhSoStupid

marksoton wrote: »

OhSoStupid wrote: »

Some lenders won't take tax credits ( or only a proportion of them) into account when assessing someone for a mortgage on where they want to live alone. You've had it good pal.

( FYI i've never received a penny of CTC or WTC)

We only started claiming tax credits when we started a family, after getting the mortgage. Our mortgage was based on our employment incomes only.

marksoton

leveller2911 wrote: »

Not quite sure what you're trying to say Mark. Is that comment aimed at me or the OP?.You qouted me quoting the OP which is confusing.

Apologies,not you at all!

leveller2911

OhSoStupid wrote: »

We only started claiming tax credits when we started a family, after getting the mortgage. Our mortgage was based on our employment incomes only.

How long have you had the 2 BTL mortages and how much are the shortfalls?.

The BTL mortgage market is not regulated in the same way as residential.

Why didn't you include the 2 BTL in your bankruptcy in 2011?. Surely as they didn't have any equity you wouldn't have made a loss in getting rid and including them in the BR?......Or were you counting on their value rising ?.

I'm not judging you on the BR but if there was no equity in them back in 2011 why on earth did you keep hold of them?.

marksoton

OhSoStupid wrote: »

marksoton wrote: »

We only started claiming tax credits when we started a family, after getting the mortgage. Our mortgage was based on our employment incomes only.

I'm not judging you at all.

But the fact you're interest only suggests it's from previous years. I would seek professional advise.

OhSoStupid

marksoton wrote: »

OhSoStupid wrote: »

I'm not judging you at all.

But the fact you're interest only suggests it's from previous years. I would seek professional advise.

Yes the btl mortgages are a few years old. It was normal to take them out on an interest only basis. This was the only way the rent would cover the costs.