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Showing results for tags 'clause 24'.
Very speculative thread. Not so much counting chickens before they've hatched as speculating on the mechanics of their demise whilst it conjectured, but before it arrives. Some thoughts from a conversation. We assume the following: At some point between 2016 and 2020 BCBS risk-weights start to widen the difference between mortgage interest rates on interest-only buy-to-let mortgages and rates on repayment mortgages offered to owner-occupiers, i.e. BTL mortgage rates go up Over the same time scale, Clause 24 of the Finance Act 2015 is applied in its current form turning cash flows on leveraged property portfolios net negative as the rents are inadequate to cover the mortgage interest and the tax, (any ability of leveraged landlords to raise rents is assumed to be inadequate to cover the rising cash outflows). There are then two end games. Either the landlord pays the mortgage interest but starts to build up a debt to the Revenue on the income tax they owe or they pay the Revenue in full and slip into arrears with their lenders. As discussed on the Tax Relief thread (h/t pipllman for the reference), where a creditor makes a bankruptcy petition against a debtor, as assets are disposed of by the trustee, when a CGT liability arises, the CGT represents the first charge, (i.e. AFAIK the Revenue skips in front of the secured creditor and gets paid first). Considering a portfolio landlord, this means that once the Revenue make a bankruptcy petition and the landlord is declared bankrupt then as the BTL properties are sold, the Revenue are paid off and then the banks get what is left. Now, some more speculation. A leveraged landlord in denial will presumably pay the mortgage interest charges as they arise and not make adequate provision for the income tax bill, hence when the bill arrives they won't be able to pay it, i.e. the supposition is that denial leads to a debt to the Revenue. The bank know that if the Revenue can force bankruptcy before the bank can repossess, the bank will face larger losses as the CGT has to be paid first, hence the bank are highly motivated to call in the loan before the Revenue can petition for bankruptcy The Revenue will know that if the bank get to repossess before the Revenue can petition for bankruptcy, then the bank may leave nothing but an asset-less ex landlord unable to pay their CGT. The thing that is new is Clause 24. Before that, with low mortgage interest rates, you had nothing to rapidly bankrupt portfolio leveraged landlords, but now you do.
There are some notices of amendments to the finance bill by David Gauke For clause 24, I think they are just tidying up the language and in no way detract from the aim of the clause as previously published But, if anyone with a better understanding spots anything significant... http://www.publications.parliament.uk/pa/bills/cbill/2015-2016/0057/amend/pbc0570810a.1-7.html