Being A landlord is not a business

da_rule

ANDR£W wrote: »

I have nothing against anyone buying property,But I do not agree that LL,s should recieve any financial reward from the tax payers purse! when there are other more needy causes,I.E abolish Stamp Duty for young first time buyers and building more social housing for families that cannot ever afford to buy but get financial help via Housing benefit to pay ridiculous rents too unscrupulous Rigsbyesque landlords.Does the fact that you believe you're running a Business instead of being a LL help you sleep easier?

What types of business are deserving of tax reliefs? Reliefs are there generally to allow businesses (whether that's a LL, sole trader or a multi-national company) to have more money to reinvest into their business or the economy, be that through buying more items, paying their staff (or selected staff) more or investing it. Or reliefs can be used to encourage certain behaviours or certain types of industry (film relief etc).

Bossypants

MyOnlyPost wrote: »

I have read in several threads from several posters the notion that landlords run a business. This is simply not true. Landlords buy a house as an investment and rent is a return on that investment, no different to returns on stocks or shares or interest from a bank. Crucially HMRC do not categorise rent as income from work, but as income from capital investment.

I'm trying, but I really don't understand what point you are trying to make here. People generally only state 'being a landlord is a business' to make one of two points:

a) The landlord in question is not turning a profit, and it is being pointed out that this is bad business

b) The landlord in question is not managing their property correctly (or, in some cases, at all)

Where it's the first, that's just good advice, and where it's the second, the point being made is that the landlord is neglecting to fulfil their legal and/or ethical duties, which would be true whether or not you agree with the fact that being a landlord to be a business.

In fact, on that note, I'd just point out that actually, being a landlord actually involves more legal and especially ethical responsibility than most start-up businesses. As a landlord, you are quite literally directly responsible for people's homes and, by extension, a certain portion of their well-being (because living in a poorly maintained home is likely to affect their quality of life and even their health). I say this as a landlord myself, it's really not something to be taken lightly.

mrginge

Rent is not a return on investment.

da_rule

Also, much like any other business, being a LL has risks.

1) The bottom drops out of the property market and you are left in negative equity, potentially across multiple properties.
2) The bottom drops out of the rental market and the rental income no longer covers the costs of owning the property (rent/insurance etc).
3) A bad tenant causes damage that has to be paid for.
4) A bad tenant causes the LL to incur other costs (legal costs etc).

When they do sell they have CGT to pay, which can be quite a large chunk or any profit.

It is done in the hope that the monthly rent shows them a profit after they have paid their fees and that when the time comes to sell this will also yield a profit. If it was merely an investment then they might as well let the property sit empty and just hope the market value increases, much like buying shares.

MyOnlyPost

kinger101 wrote: »

You're entitled to your own opinion. You're not entitled to your own facts.

http://www.rossmartin.co.uk/sme-tax-news/35-sme-tax-news/1091-letting-qualifies-as-business

You quote an accountant as your source of proof, allow me to quote HMRC

Paying tax and National Insurance When you rent out property you may have to pay tax.
Running a property business

You have to pay Class 2 National insurance if your profits are over £5,965 a year and what you do counts as running a business, for example if all the following apply:

• being a landlord is your main job
• you rent out more than one property
• you’re buying new properties to rent out

https://www.gov.uk/renting-out-a-property/paying-tax

So if you have a full time job and being a landlord is a secondary income, the vast majority of landlords, then you are not running a property business.

From my own experience, I have a disabled daughter who I stay at home and care for. I contactd HMRC who told me I could claim carers allowance for her regardless of how much rent I received because it is not classed as income from work, it is income gained from capital investment. "In order for it to be income from work you would have to spend at least 24 hours a week manageing your rentals" was a direct quote. Anyone who is spending 24 hours or more managing their rentals clearly is running a property business. I fill out my tax return every year and if HMRC regarded my income as being from work my carers allowance would be stopped as I would be over the threshold.

Regarding "tax relief". Any company who borrows money to invest into it's business is entitled to offset the cost of that borrowing 100% agsint profits at the prevailing tax rate, no one refers to that as being tax relief. If a sole trader has profits of £46k and his accounant tells him to lease a car as it's tax efficient and will take hiim under the 40% threshold, that isn't deemed to be tax relief. If being a landlord truly was a business then that "business" would have the same rights and privileges of any other business and be able to offset it's finance costs 100% against it's turnover. However Osborne spun it that this was a tax relief for wealthy property owners which is why it had to be changed.

For the record although I am a landlord this doesn't apply to me. I do not have a full time job as I care for my daughter (although I do not run my portfolio either, it's in the hands of agents), I am not in the 40% tax bracket and I have very little mortgage debt against my properties, so it does not and never will affect me directly, but the principle that landlords can be singled out for repeated attacks by a pro wealth creation government (I could understand the Labour party taking this stance), who distort the truth and turn public opinion against the very people filling the housing gap, I find infuriating.

steampowered wrote: »

Dictionary.com defines a business as follows:



Being a landlord very clearly meets the second and third limbs of that definition.

Being a landlord is totally different from buying stocks and shares. You can't just buy a house and forget about it. You have a legal responsibility to maintain the state of the property.

The points you are making on tax suggest that you do not understand the difference between a "business" and a "company". These are completely different concepts. A sole trader conducting a business is not able to offset borrowing against profit in the same way that a company can.

I use the word business as that is the word used by many forumites and by HMRC in the link I postd above.

If a sole trader has net profits of £60k before loan repayments and his interest repayments are £20k then he is taxed on £40k of income and falls into the 20% tax bracket. If a landlord has a job paying £40k and receives £20k rent from his property but services £20k of mortgage interest debt he is deemed to have earned £60k for tax purposes and falls into the 40% tax bracket. He then receives a "tax relief" of 20% on his mortgage debt (not 40% that the sole trader got on his loan) so in this example the landlord pays more tax than the sole trader despite having the same net income. Clearly if being a landlord were treated as a business then both would have the same tax liability or the landlords would be being discriminated against. By saying landlords are not a business the governemt are able to work around this tax discrimination.

mrginge

Your quote is of no relevance at all.

Pixie5740

So the OP isn't your only post....:p

MyOnlyPost

ANDR£W wrote: »

I have nothing against anyone buying property,But I do not agree that LL,s should recieve any financial reward from the tax payers purse! when there are other more needy causes,I.E abolish Stamp Duty for young first time buyers and building more social housing for families that cannot ever afford to buy but get financial help via Housing benefit to pay ridiculous rents too unscrupulous Rigsbyesque landlords.Does the fact that you believe you're running a Business instead of being a LL help you sleep easier?

I don't believe I am running a business, I am however a landlord, I think you misunderstood my post. I don't charge ridiculous rents, in fact my houses are all let out at roughly the cost of a mortgage to buy them (at SVR) as I have no mortgage payments to cover. Generally my rents are slightly lower or the same as local HA or local council, and we all know you have very little chance of getting a council house. Some people don't seem to get that some people simply don't want to buy a house either presently or ever and some people will never be able to buy a house for one reason or another, yet they all have to be housed. I also maintain all my houses to a good standard and comply with all regulatory requirements. Your post is the kind of lanlord bashing I am railing against because you have lumped all landlords togther when the type you describe are probably less than 10% of all landlords

MyOnlyPost

mrginge wrote: »

Your quote is of no relevance at all.

I cannot prove what HMRC said to me directly, no. But I can and have proven what HMRC determines to be running a property business and the vast majority of landlords do not fall into this category. It is estimated that over 90% of landlords only own one property

Arleen

MyOnlyPost wrote: »

What other business pays tax on a loss?

Flawled logic LLC.
The money that pays your mortgage is not a loss. It's money paid towards an asset that you own. As you used that logical pole-vault in another post, I felt compelled to point it out.