Being A landlord is not a business

itchyfeet123

MyOnlyPost wrote: »

If I buy an assett for £100k and pay interest only at 5% for 25 years I still owe £100k at then end of the term, so how is the interest paying towards the assett? It allows me to own an assett I otherwie couldn't have like anyone who has a mortgage

Would you buy gold with an interest-only mortgage? No, because the only value of gold is the asset itself. There's no market for people who'll pay you to use your gold. The point is you're using your asset (the house) to generate revenue (what you receive in rent) that is separate from its value (how much you could sell for).

kinger101

MyOnlyPost wrote: »

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.

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.

Er.........I'm quoting a tribunal case involving HMRC. I could link you to the actual case but I'd hope the article would be more accessible.

Frankly, that .gov.uk site contains so much information contrary to tax law it's widely regarded as a joke by any tax professional. The HMRC manuals can be informative, but gov.uk is about as reliable as some bloke in the pub.

NIC is not a tax on business profits!

MyOnlyPost

itchyfeet123 wrote: »

I'm puzzled as to why the semantics are important to you. Your argument is that LLs are unfairly villainised while bad tenants get less attention. I don't think that's true but it's not an unreasonable viewpoint. How on earth does your insistence that LLs are not running a business come into it?

Actually it's other peoples posts in other threads that I am replying to. I read 4 separate times today in various threads that landlords are running a business and my experience with HMRC, who let's be fair are the ultimate arbiters as to what constitutes income from work, says I am not running a business and my income is derived from capital investment, their words not mine. I appreciate other people may disagree and have their own definition of what constitutes a business, but for tax purposes at least rental income from property is considered to be income from capital investment unless you are deemed to be running a property business.

The link I posted earlier which is here again to save going back

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

Yes that page mentions NI and Tax, it is one page of 7 about renting out a property. The article isn't aboout tax, only that page. If you go back to page 1 and read from the beginning when you get to financial responsibilities it says:

You have to pay:

• Income Tax on your rental income, minus your day-to-day running expenses
• Class 2 National Insurance if the work you do renting a property counts as running a business.

Concentrate on those last 13 words, in particular.IF, so thereby automatically not all property rental counts as running a business. Hmmm I wonder how HMRC defines running a property business, luckily there is a hyperlink which takes us to page 6 where as I quote before


.....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

Over 90% of landlords have only 1 property
Over 90% of landlords have a full time job or are retired



So over 90% of landlords are not running a business by HMRC's definition


AND further down the same page


You don’t pay National Insurance if you’re not running a business - even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.


So even arranging repairs, advertising for tenants and arranging tenancy agreements does not count as running a business if the earlier 3 definitions don't apply to you. The definiton of what constitues a property business isn't even ambiguous, You must have more than one property and you must manage property as your main job.



You are all entitled to your own opinions of course but clearly mine is baased on hard evidence from the HMRC website so if you disagree with my assertion that being a landlord isn't a business then you also disagree with HMRC's definition of whether a landlord is running a business too. Those of you who have greater knowledge of what constitues a business than HMRC, I bow down to your superior intellect

booksurr

MyOnlyPost wrote: »

You are all entitled to your own opinions of course but clearly mine is baased on hard evidence from the HMRC website so if you disagree with my assertion that being a landlord isn't a business then you also disagree with HMRC's definition of whether a landlord is running a business too. Those of you who have greater knowledge of what constitues a business than HMRC, I bow down to your superior intellect

I note you have not quoted my post at #4 because of course it directly undermines your stance as HMRC categorically state it IS a business.

why you cannot see the wood for the trees is because you are hung up over the word itself. What you have totally and utterly failed to understand is that the tax treatment is about TRADING ACTIVITY not merely about "running a business" and mixing up your definition of "business" in the context of tax treatment is simply wrong as it leads to the confusion you are showing.

as i said in my earlier post, HMRC have very carefully ensured that legislation allows them to differentiate between letting income and trading as a landlord. You have quite correctly selected the quote where that is mentioned, as it is exactly that rule which enables HMRC to deny a LL the TRADING income tax treatment in favour of the rules applicable only to rental income. The distinction is, as explained in the quote, largely one of degree of personal involvement in "the business"

as i said what point are you trying to make? Tax law has been expressly written to treat the majority of property income as non trading activity. In so doing it has additionally defined property income as its own category so to distance it from "normal" investment activity and thereby allow rules to be written regarding what are and are not eligible costs against the income.

The exceptions being where the occupant requires more than just the provision of the building by the landlord, hence Furnished Holiday Lets and Bed & Breakfast involve an obvious element of "trading", which is very distinct from "merely" issuing a 6 month tenancy agreement and leaving the property alone until the agreement expires.

the real issue is trading v non trading, not "business"

in the old days tax used to be classified by schedule,
Schedule A (tax on income from UK land)
Schedule B (tax on commercial occupation of land)
Schedule C (tax on income from public securities)
Schedule D (tax on trading income, income from professions and vocations, interest, overseas income and casual income)
Schedule E (tax on employment income)
Schedule F (tax on UK dividend income)

you will note that schedule A is distinct from schedule E and F precisely so that the rules regarding eligible costs could be varied between schedules. UK Tax law is based on what is the source of the income, the schedular system allowed individual sources to be differentiated. Tax law was rewritten in 2007 to "use ordinary language", but the differentiation principle continued unchanged, now it is simply called "property income" rather than schedule A income, but the point remains property income is neither "investment income", "employment income", nor "trading income" as far as income tax is concerned, it is simply property income subject to its own rules

kinger101

MyOnlyPost wrote: »

Actually it's other peoples posts in other threads that I am replying to. I read 4 separate times today in various threads that landlords are running a business and my experience with HMRC, who let's be fair are the ultimate arbiters as to what constitutes income from work, says I am not running a business and my income is derived from capital investment, their words not mine. I appreciate other people may disagree and have their own definition of what constitutes a business, but for tax purposes at least rental income from property is considered to be income from capital investment unless you are deemed to be running a property business.

The link I posted earlier which is here again to save going back

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

Yes that page mentions NI and Tax, it is one page of 7 about renting out a property. The article isn't aboout tax, only that page. If you go back to page 1 and read from the beginning when you get to financial responsibilities it says:

You have to pay:

• Income Tax on your rental income, minus your day-to-day running expenses
• Class 2 National Insurance if the work you do renting a property counts as running a business.

Concentrate on those last 13 words, in particular.IF, so thereby automatically not all property rental counts as running a business. Hmmm I wonder how HMRC defines running a property business, luckily there is a hyperlink which takes us to page 6 where as I quote before


.....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

Over 90% of landlords have only 1 property
Over 90% of landlords have a full time job or are retired



So over 90% of landlords are not running a business by HMRC's definition


AND further down the same page


You don’t pay National Insurance if you’re not running a business - even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.


So even arranging repairs, advertising for tenants and arranging tenancy agreements does not count as running a business if the earlier 3 definitions don't apply to you. The definiton of what constitues a property business isn't even ambiguous, You must have more than one property and you must manage property as your main job.



You are all entitled to your own opinions of course but clearly mine is baased on hard evidence from the HMRC website so if you disagree with my assertion that being a landlord isn't a business then you also disagree with HMRC's definition of whether a landlord is running a business too. Those of you who have greater knowledge of what constitues a business than HMRC, I bow down to your superior intellect

The HMRC website is not hard evidence. I suspect much of it has had very little input from senior people. It's a product of the government wanting to put everything on the internet. Sometimes things are wrong. Sometimes they're misleading. Often deliberately so.

You can't really call anything they or you have said EVIDENCE unless you provide references to the primary legislation or relevant case law. HMRC don't write the law. Or always understand it. The numpties who created their website less so.

Miss_Samantha

Is there a purpose to this thread?
Apart from starting an argument that is, and it has already been quite successful in that.

agrinnall

I'm waiting for the OP to bring up the 'freeman on the land' argument, which seems to be how threads like this often end up.

FBaby

Miss_Samantha wrote: »

Is there a purpose to this thread?
Apart from starting an argument that is, and it has already been quite successful in that.

Exactly, who cares! The word is only used by some posters to undermine landlords who don't all the ins and outs of being a landlords, the same ins and out that supposed expert forums themselves argue about in terms of legality!

I especially like the criticism attributed to landlord who dare live the management of their 'business' in the end of rental agencies, ie. the experts because they can only be complete idiots to trust those who are trained to provide the service and therefore paid for it.

I wonder how they would feel if they posted on the health forum that their private doctor misdiagnosed then resulting in complications with a condition and they were told 'well it's your fault for not informing yourself about your condition and trusting your doctor, it's irrelevant that you are paying him with the expectation of providing an expert service.

I think too many people associate the world 'landlord' with money machines, when I believe the vast majority of landlords only own one other property and their income is/was derived from jobs.

steampowered

You are being unbelievably stubborn. It appears you simply ignore any evidence you are presented with which might disagree with the fairly strange position you have adopted.

As has already been clearly explained, the link you posted purely concerns class 2 insurance contributions, which is a tax paid by self-employed people who do a business fulll-time. Hence why only full-time landlords are caught.

Several times you have been linked to other HMRC guidance manuals which state very expressly state that being a landlord is treated as a business activity for the purpose of the taxes being considered in those manuals.

Obviously, and I can hardly believe I have to say this, the requirements for paying different types of taxes are different. The requirements for paying class 2 national insurance contributions are going to be different to the requirements for capital gains tax or the unfair contract terms act or whatever other piece of legislation uses the concept of a "business".

AdrianC

itchyfeet123 wrote: »

Income from work =/= business ownership. I would have thought that was obvious; I get paid a salary, but that doesn't make me a business owner.

No, but you are certainly working for and within a business, which somebody owns.