New taxes on BTLs - hill of beans?

jdw2000

A friend of mine is in the process of buying a BTL house. I advised her to make sure she understands the new taxes because many potential BTL investors were being put off by them.

However, I've just filled in an online BTL tax calculator on her behalf and the new tax is precisely zero for her. And even when I play around with the figures to make it look more profitable, it's hardly unaffordable. In fact, it doesn't even warrant much consideration.

Either that, or I missing something (which I doubt, as I used an online calculator: http://www.telegraph.co.uk/property/buy/buy-to-let-calculator-how-will-new-tax-reduce-your-profit/ )

Figures used:

£12,000 rental income
£6,000 costs (£4,800 mortgage payments and £1,200 costs)
Landlady is basic-rate tax payer


And the CGT when it comes to selling.... still 18%. That's where the Chancellor needs to target if he wants to out landlords off BTLs.



BTLs are still a solid enough enterprise.

kinger101

I've no idea how you've come to your no tax figures, but I suspect the calculator is incorrect, or more likely, you've misunderstood something quite fundamental.

By definition, if there is a profit, the income is taxable. For higher rate taxpayers with a mortgage, they may still need to pay a tax on an accounting loss. The cap on interest deductions at basic rate only is being tapered on.

I don't think you'll be able to provide the Chancellor with much advice on taxation matters.

EDIT - a cursory glance at that tax calculator tells me it's about as useful as Anne Frank's drum kit.

Crashy_Time

jdw2000 wrote: »

A friend of mine is in the process of buying a BTL house. I advised her to make sure she understands the new taxes because many potential BTL investors were being put off by them.

However, I've just filled in an online BTL tax calculator on her behalf and the new tax is precisely zero for her. And even when I play around with the figures to make it look more profitable, it's hardly unaffordable. In fact, it doesn't even warrant much consideration.

Either that, or I missing something (which I doubt, as I used an online calculator: http://www.telegraph.co.uk/property/buy/buy-to-let-calculator-how-will-new-tax-reduce-your-profit/ )

Figures used:

£12,000 rental income
£6,000 costs (£4,800 mortgage payments and £1,200 costs)
Landlady is basic-rate tax payer


And the CGT when it comes to selling.... still 18%. That's where the Chancellor needs to target if he wants to out landlords off BTLs.



BTLs are still a solid enough enterprise.

How much is she borrowing to buy the house?

Crashy_Time

kinger101 wrote: »

I've no idea how you've come to your no tax figures, but I suspect the calculator is incorrect, or more likely, you've misunderstood something quite fundamental.

By definition, if there is a profit, the income is taxable. For higher rate taxpayers with a mortgage, they may still need to pay a tax on an accounting loss. The cap on interest deductions at basic rate only is being tapered on.

I don't think you'll be able to provide the Chancellor with much advice on taxation matters.

The 12k is her only income though?

p00hsticks

jdw2000 wrote: »

Figures used:

£12,000 rental income
£6,000 costs (£4,800 mortgage payments and £1,200 costs)
Landlady is basic-rate tax payer

Not that familiar with the rules, but surely that leaves a £6k profit at least for her to pay tax on (and potentially more if the mortgage is not interest-only) ?

kinger101

Crashy_Time wrote: »

The 12k is her only income though?

Perhaps......I said the income is taxable. It doesn't necessary mean it will be taxed if income is below the threshold. But how many landlords are there for whom a single property is their source of income? Many benefits (inc state pension) are taxable income.

Crashy_Time

kinger101 wrote: »

Perhaps......I said the income is taxable. It doesn't necessary mean it will be taxed if income is below the threshold. But how many landlords are there for whom a single property is their source of income? Many benefits (inc state pension) are taxable income.

Not sure, but the scenario is just nonsense anyway, no accounting for voids or sizeable repairs/replacements or rate rises which must surely be coming?

tim123456789

Crashy_Time wrote: »

Not sure, but the scenario is just nonsense anyway, no accounting for voids or sizeable repairs/replacements or rate rises which must surely be coming?

yeahbut people (including me) have been cautioning against all this for 15 years


and the only people who have lost out are those (like me) who believed it.


Anybody who ignored it and bought anyway is quids in (unless they bought very very badly indeed)


tim

Crashy_Time

tim123456789 wrote: »

yeahbut people (including me) have been cautioning against all this for 15 years


and the only people who have lost out are those (like me) who believed it.


Anybody who ignored it and bought anyway is quids in (unless they bought very very badly indeed)


tim

15 years? There wasn`t a house price bubble on top of a Ponzi with massive intervention and the lowest rates ever on record to keep it all from imploding (and that even isn`t working any more) 15 years ago? It is the people buying now and those who have not paid off their debts that will take the hit.

kinger101

While I don't doubt many made sound investments, for a good few, the profits were solely based on reasons Crashy has outlined (we don't agree often). People often confuse making a wise investment with being lucky.

I know of landlords who have not been quids in because of having the wrong tenants as well. It's always going to be a risk, particularly if it's your only rental property. All one's eggs in one basket.

Shakin_Steve

I'm not very well up on these things but, as far as can work out, landlords don't make a profit on renting out properties that they own. The payoff comes once the mortgage is paid, and they are rewarded for all their hard work with a property they own outright.