[ChairmanOfTheBored]

This is what I've just tacked on to the original thread:

OK - my final attempt to sell the structure:

• you have to be a banker working in mortgage backed securities for it to be sweet
  
• it is something that you had to set up in the past, you would be just milking it now
  
• it is a way to use BTL mortgages to leverage up, multiplying your gains if it pays out
  
• it should be looked at from the point of view of what else could you do with a £1m bonus, that you wanted to save not spend
  
• if you put the bonus in an investment that yields income, you have to pay tax on the income at 50% and bear the risk of the asset (shares maybe) losing value
  
• if you put the investment into the structure and it pays out the win is massive
  
• there is an "insurance policy" aspect against a small fall in house prices using a CGT loss if you can conjure up a CGT gain somewhere else

This is really big I think because it will be bloody brilliant politics to use retroactive changes to shut it down - seeing as its the same bankers who made the mess who are using the structure.

Also these people using the structure are hard nosed traders. One whiff of trouble and they will start ditching their BTLs at the price they need to sell at in order to sell quickly

Many of these BTLs may be focussed in the same BTL friendly local housing markets - i.e. university towns.

Because of the leverage you get from a high-LTV IO BTL, even £500,000 invested could become £5,000,000 worth of BTL property.

Let's say just 10 people did this and they only went in for £1,000,000 each, that's still £10,000,000 worth of deposits buying £100,000,000 worth of BTLs

What if it was 20 people at £2m?

That's a lot of houses possibly concentrated in the same areas.

The million dollar question is how much of this has been sold off already?

Equally importantly, I would speculate that it explains why the high LTV IO mortgage came to exist at all.

The same bank employees who provided the specialist lenders with funds were the ones taking the gamble.

They would have told the losers at the specialist lenders, "Yeah, we at Merrill Lynch really think that the market can bear a 90% LTV IO BTL mortgage, so go ahead and offer them"

Then they take out the same mortgages as a vehicle to take a personal side bet into the bubble that's already paying them millions at work in fees.

This added bonus of the product was that once the sheeple got hold of them they used them to bid up house prices, and the bankers side bet was paying out big time.

If you set this up in 2003, you won't be out of the money till it gets back to those levels, even if you never made a penny of net income on the rents, even if you had a £0 income from the properties from 2003-2012, all you would have lost is the after tax investment income on the money you put down, and all that time your capital was becoming increasingly protected as house prices inflated.

This post has been edited by ChairmanOfTheBored: 14 April 2012 - 01:03 PM

[monkeyman1974]

This is really big I think because it will be bloody brilliant politics to use retroactive changes to shut it down - seeing as its the same bankers who made the mess who are using the structure.


Have you informed HRMC - to ask them to look at it?

[ChairmanOfTheBored]

monkeyman1974, on 14 April 2012 - 01:27 PM, said:

This is really big I think because it will be bloody brilliant politics to use retroactive changes to shut it down - seeing as its the same bankers who made the mess who are using the structure.


Have you informed HRMC - to ask them to look at it?

Got so grumpy about you lot ignoring me that I just e-mailed the Guardian.

As to the HMRC, will follow your suggestion, but I just assumed that they must know, it was the comment about high net worth individuals leveraged to the hilt on the original thread that sent me searching for the dodge and Paul Mason suggested that was sourced from the HMRC.

This post has been edited by ChairmanOfTheBored: 14 April 2012 - 01:36 PM

[ska_mna]

ChairmanOfTheBored, on 14 April 2012 - 12:54 PM, said:

This is what I've just tacked on to the original thread:

Equally importantly, I would speculate that it explains why the high LTV IO mortgage came to exist at all.

The same bank employees who provided the specialist lenders with funds were the ones taking the gamble.

They would have told the losers at the specialist lenders, "Yeah, we at Merrill Lynch really think that the market can bear a 90% LTV IO BTL mortgage, so go ahead and offer them"

Then they take out the same mortgages as a vehicle to take a personal side bet into the bubble that's already paying them millions at work in fees.

This added bonus of the product was that once the sheeple got hold of them they used them to bid up house prices, and the bankers side bet was paying out big time.

If you set this up in 2003, you won't be out of the money till it gets back to those levels, even if you never made a penny of net income on the rents, even if you had a £0 income from the properties from 2003-2012, all you would have lost is the after tax investment income on the money you put down, and all that time your capital was becoming increasingly protected as house prices inflated.

So could I fairly summarise this as:

"I've got some money. How do I best shield it from tax and risk?"

That could apply to anyone though, right? e.g. not just bankers.

So is the key point you're making here is that it could be considered that if bankers use BTL in this way it is almost a form of "insider trading" compared to if, say, you or I did it. (And obviously the sums of money bankers have to invest are much larger than what an average Joe would be trying to shield)

Other than this "insider trading" moral hazard, is there anything wrong with it though? I mean apart from the whole bloody system being corrupt, why is this aspect any more corrupt?

Thanks for all your recent spate of postings by the way, I've enjoyed reading them.

[ChairmanOfTheBored]

ska_mna, on 14 April 2012 - 02:06 PM, said:

So is the key point you're making here is that it could be considered that if bankers use BTL in this way it is almost a form of "insider trading" compared to if, say, you or I did it. (And obviously the sums of money bankers have to invest are much larger than what an average Joe would be trying to shield)

Basically, yes. However, if you could make insider trading stick you could crucify them. I don't know anything about insider trading, but the houses aren't securities are they, so unless the law is drafted to deal with influencing a market in more general terms its probably not legally wrong.

It just occurred to me that you might even be able to use the capital withdraw wheeze to pull out equity by refinancing a BTL that had initially been 75% LTV onto a new higher LTV, pulling out some of the equity. I'll need to get to grips with the capital withdrawal rules, but presumably by flipping I could pull out equity as I went, so my mortgages were always as big as possible.

I assume that the capital withdrawal wheeze and how it feeds into flipping is well understood on the boards - can anyone point me to a thread about it?

This post has been edited by ChairmanOfTheBored: 14 April 2012 - 03:06 PM

[monkeyman1974]

ChairmanOfTheBored, on 14 April 2012 - 01:35 PM, said:

Got so grumpy about you lot ignoring me that I just e-mailed the Guardian.

As to the HMRC, will follow your suggestion, but I just assumed that they must know, it was the comment about high net worth individuals leveraged to the hilt on the original thread that sent me searching for the dodge and Paul Mason suggested that was sourced from the HMRC.

you're probably right, but it'll do no harm so full power to you

the more noise that can be made on this (and it'll may need to be via Guardian / BBC rather than Telegraph / mail etc) the better

[koala_bear]

I fear you only have half the story - A big additional point (in brief):

Would love to see plenty of discussion and your thoughts on the below, especially from those with better tax knowledge.

Banker BTL set up (my understanding from what I have heard from what friend's bosses were up to):

Set up limited company and buy BTL with it (leveraged to the hilt by as per chairman of the bored).
Bankers get paid by bank as a consultant with the pay and bonus going to their limited company.
The scale of BTL income (if done properly i.e. needs big leverage and/or plenty of properties or high market value ones) should put them outside IR35 so they aren't seen to be "working" full time for the bank and are legitimately a consultant with the pay and bonus going to Ltd company.
(Rent a home from your Ltd company too? - Merit of this for discussion (i.e. interest on own home loan off set against tax? or set up a mutual arrangement with a friend) or use of flipping galore)
Aim to pay off mortgage capital on a property in ~ 5 years with bonuses (vestiges of taper relief days? - less important now).

Pay corporation tax at 24% (current tax year) on all your earnings (pay, bonus and BTL profit etc.), far better than 40 and 50% rates.

Rents would be set to manipulate the numbers as required but would probably be fairly low as they is no need for the BTL properties alone to produce a good yield (and many reasons not to).

Anecdoatal evidence that some younger bankers (pre 2007) were going for BTL setups before buying their own home as they were obsessed with following their bosses set ups.

Presumably the long term aim would be as a post banking business so don't give a toss (it my pension in'it) about off loading any props in anything other than the very long term.

[ska_mna]

koala_bear, on 15 April 2012 - 09:52 AM, said:

Pay corporation tax at 24% (current tax year) on all your earnings (pay, bonus and BTL profit etc.), far better than 40 and 50% rates.

CT rates were higher back in 2000 - 2007 than they were now I believe. Around 32%?

koala_bear, on 15 April 2012 - 09:52 AM, said:

Rent a home from your Ltd company too?

I know you can offset a portion of your rent against your income if you work from home, but I'm not sure how it would work if you were actually renting the home from a company you also own. I doubt it would be legal, or not without Benefits In Kind to be paid.

This post has been edited by ska_mna: 15 April 2012 - 11:44 AM

[ChairmanOfTheBored]

koala_bear, on 15 April 2012 - 09:52 AM, said:

I fear you only have half the story - A big additional point (in brief):

Would love to see plenty of discussion and your thoughts on the below, especially from those with better tax knowledge.

Banker BTL set up (my understanding from what I have heard from what friend's bosses were up to):

Set up limited company and buy BTL with it (leveraged to the hilt by as per chairman of the bored).
Bankers get paid by bank as a consultant with the pay and bonus going to their limited company.
The scale of BTL income (if done properly i.e. needs big leverage and/or plenty of properties or high market value ones) should put them outside IR35 so they aren't seen to be "working" full time for the bank and are legitimately a consultant with the pay and bonus going to Ltd company.
(Rent a home from your Ltd company too? - Merit of this for discussion (i.e. interest on own home loan off set against tax? or set up a mutual arrangement with a friend) or use of flipping galore)
Aim to pay off mortgage capital on a property in ~ 5 years with bonuses (vestiges of taper relief days? - less important now).

Pay corporation tax at 24% (current tax year) on all your earnings (pay, bonus and BTL profit etc.), far better than 40 and 50% rates.

Rents would be set to manipulate the numbers as required but would probably be fairly low as they is no need for the BTL properties alone to produce a good yield (and many reasons not to).

Anecdoatal evidence that some younger bankers (pre 2007) were going for BTL setups before buying their own home as they were obsessed with following their bosses set ups.

Presumably the long term aim would be as a post banking business so don't give a toss (it my pension in'it) about off loading any props in anything other than the very long term.

Thanks for posting. This makes the scam bloody amazing.

I've looked a little more carefully into the CGT structure, see the thread BTL - the smart money and the dumb money.

With refinancing the BTLs inside the corporate wrapper will be just printing tax free money because IIRC the tax treatment for corporations is very similar, (in fact I think that the broad structure of the rules for tax on individuals begins with "first pretend you are a business.")

All the rental income then makes the tax treatment of what would otherwise be earned income legit.

Given the aggro of running a farm of BTLs you probably just got enough to make the wrapper lawful and benefit from the 25% vs 50% edge on your "pay" from the bank.

If you're right about the CT edge, and as clearly people are doing this I suspect you are, the whole thing is ***king horrendous, especially given all the news about senior public officials and BBC execs being able to use corporate wrappers for their income.

[ChairmanOfTheBored]

ska_mna, on 15 April 2012 - 11:44 AM, said:

CT rates were higher back in 2000 - 2007 than they were now I believe. Around 32%?

They were still lower than the higher rate for earned income and any way, the BTL scam is worth doing on its own, even without the benefits of giving you a 10%-25% reduction in your marginal tax on what the bank is handing over.

These people will need to think about "exiting these positions" if they think that the Revenue have got Osborne's dander up. A broke government is just as avaricious as a banker