Thursday, Oct 04, 2007
Tax relief on BTL being discussed
IFA: Paragon rejects IOD call to end BTL tax relief
IOD proposal is very sensible. Mortgage tax relief is a complete UK anomaly, the single most important reason for the rampant HPI. In the US the mortgage interests on the first house are deductable, not on btl. Houses should not be investments! There is limited stock of houses and rampant cost of housing is cripplling the UK economy. “Adopting the IOD’s proposals on buy-to-let mortgages would have a destabilising effect on the property market, removing one of the incentives for landlords to invest in buy-to-let property and making renting more expensive for those not yet ready to step on the housing ladder”, adds Terrington. The first part of the sentence is true, but the second part is cr@p. But in any case, the btl market is going down the drain
16 Comments
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1. waitingfor hpc said...
sounds spot on to me - they should not get tax relief
2. paul said...
Well whose opinion holds more weight - Instiute of Directors or Paragone Buy ToiLet?
3. waitingfor hpc said...
paul - on this point the IOD - but they have some wacky ideas too at times
4. paul said...
hpc, yes that's true - I'd say they are the least unbelievable of the two!
5. voiceofreason said...
Houses should be for living in, period.
I think the IoD is a voice of reason here :-)
6. the bald man said...
Perhaps a half way hous ealternative would be better to deter excessive borrowing i.e. limit the loan eligible for tax relief based on teh property purchase price (say 50%)
7. Evil Btl Landlord said...
"In the US the mortgage interests on the first house are deductable, not on BTL"
So I remortgage my house to fund a BTL and get tax relief on the lot? I'll vote for that!
8. eyeoftheweasel said...
A fundamental problem with allowing any mortgage tax relief on BTL is that it gives a BTL buyer an unfair advantage against a private buyer for the same property. If a BTL buyer is going to get tax relief on their mortgage 'as a business' then they should also be paying commercial, not residential, rates on the property. Unfortunately the council tax gets paid by the renter.
9. financial planner said...
I just don't see the issue - 1. They run a business. 2. They charge their expenses to their income 3. They pay tax on annual profits. 4. They pay CGT on sale. Leave it as it is - the market will sort them out.
10. su said...
They could leave it as it is (just like FP says) but also give tax relief on mortgages for homeowners too. That would take away the unfair advantage against a private buyer (like weasel-eye says). Didn't homeowners get tax relief many moons ago?
11. Duncan said...
To answer Su's question Yes she is right. To add more information it was a change to this that
triggered the great House Price Crash of 1989.
The scheme was called MIRAs Mortgage Interest Relief at Source. It offered tax relief on the first £30000
of a Mortgage. The thing was joint buyers could claim double i.e. £60000 which back then was more than the average house. In a budget it was announced that the joint buyers thing would end for new mortgages on a certain date. This caused a mad dash to buy houses before the deadline: my neighbours sold their house in six hours. A friend bought a house in with his brother despite the fact that they lived hundered of miles apart.
People really believed that if they didn't buy a house by that date they would never be able to afford one. After the deadline passed prices started to drop. By 1994 you could get the same house for about 75% of the 1989 price.
12. Eyeoftheweasel said...
That's right Su, they did give homeowners tax relief once upon a time. Personally I'm all in favour of no tax relief on residential property mortgages whatsoever (plus making the owner, not the occupier, liable for 100% of the council tax regardless of whether anyone is living in the property, plus ..... actually I'll save that rant for another time). Giving tax relief on mortgages unfortunately makes investing in property relatively more attractive than other forms of investment. Of course, that's not going to make any odds if the value of the investment is dropping like a brick.
13. eyeoftheweasel said...
That's right Su, they did give tax relief for homeowners once upon a time. Personally I'm in favour of no mortgage tax relief on residential properties whatsoever (plus owners, not occupiers, being liable for 100% of the council tax 100% of the time, but that's another rant for another day). Unfortunately, this kind of tax relief makes investing in property relatively more attractive than investing elsewhere, to those that are inclined to invest somewhere. Of course, that's of no consequence if the value of your investment is sinking like a brick.
14. paolo88888 said...
I don't think it gives an "unfair advantage to BTL" because income tax is being paid on the rent.
Suppose an OO buys a house for £100k on a 5% IO mortgage, then they pay £5k/year mortgage and say, £5k/year maintenance for the priviledge of living in the house.
Suppose a BTL investor buys it instead, with a mortgage on the same terms, and rents it out for £10k/year rent. Then they pay no tax because the mortgage and maintenance is deducted from the rent, but then they get no income because the rent goes on mortgage and maintenance.
This example is a pure feed-through. The end consumer gets the same in each case, accommodation for £10k/year. The landlord makes neither loss nor gain (ignoring capital gains for the moment). The situation is tax-neutral, which is as it should be - neither OO nor tenant nor landlord are "bad" and should not be penalised (like smokers for example).
So why would these people choose to be landlords/tenants/OO? Because of the potential for capital gain/loss. The landlord wants some gain, the tenant wants to avoid loss in a crash (what website gave them that idea?). Again, the treatment is tax neutral. OO is tax free, the landlord pays CGT if a gain occurs, but if a loss occurs this could be deducted from other gains.
It amazes me that bears on this site want renting to be taxed!
15. voiceofreason said...
The point is that tax treatment for owner-occupiers should be the same as for BTL-ers.
Otherwise BTL-ers have an unfair advantage, thus putting the cost up for owners.
Give the same tax relief for owner occupiers (i.e. tax relief on mortgage interest payments) and it will be fair.
16. confused76 said...
Paolo
please, this is a UK anomaly, it is not this way neither in the US nor in continental europe
are you saying UK taxation is fairer than in the rest of the world?