Jump to content
House Price Crash Forum
Trampa501

Is It Feasible To Charge Btl Income At A Higher Rate Of Tax?

Recommended Posts

Could a government (if it had the right political will) implement such a policy? Or would it be a tax too easy to avoid?

silly question. Of course ALL BTLs earn the landlord enough to qualify for higher rate tax on their income.

Share this post


Link to post
Share on other sites

I think one of the largest issues is the fact that for owner occupiers, income is taxed. For BTL landlords income is only taxed after mortgage interest losses.

So, as I understand it..

If you "earn" £10,000 a year from your rental, and you pay £10,000 a year in interest on the loan.. you can effectively say you are not making a profit and pay no tax at all.

On the other hand as a first time buyer.. if you purchase a house and the interest costs you £10,000 per year.. You still have to pay full tax on the income you earn to pay for it.

Simplistically for a 20% tax payer it costs you £12,500 to pay for the same mortgage that costs a BTL landlord £10,000 a year to service from his income. If you are a higher rate tax payer it costs you £16,666.

Based on this it is not hard to see why BTL landlords find it easy to outbid FTBers for houses in terms of mortgage affordability.

How to get around it.. minimum 20% tax on all revenue derived from residential property irrespective of deductibles?

Edited by libspero

Share this post


Link to post
Share on other sites

I think one of the largest issues is the fact that for owner occupiers, income is taxed. For BTL landlords income is only taxed after mortgage interest losses.

So, as I understand it..

If you "earn" £10,000 a year from your rental, and you pay £10,000 a year in interest on the loan.. you can effectively say you are not making a profit and pay no tax at all.

On the other hand as a first time buyer.. if you purchase a house and the interest costs you £10,000 per year.. You still have to pay full tax on the income you earn to pay for it.

Simplistically for a 20% tax payer it costs you £12,500 to pay for the same mortgage that costs a BTL landlord £10,000 a year to service from his income. If you are a higher rate tax payer it costs you £16,666.

Based on this it is not hard to see why BTL landlords find it easy to outbid FTBers for houses in terms of mortgage affordability.

How to get around it.. minimum 20% tax on all revenue derived from residential property irrespective of deductibles?

Ive a better idea...NO tax relief at all on mortgages for residential property.

Its a silly idea I propose to assume the mortgage is for business purposes. The House is NOT the business...renting it IS.

Share this post


Link to post
Share on other sites

Ive a better idea...NO tax relief at all on mortgages for residential property.

Its a silly idea I propose to assume the mortgage is for business purposes. The House is NOT the business...renting it IS.

You're right.. that is a better idea :D

Share this post


Link to post
Share on other sites

Ive a better idea...NO tax relief at all on mortgages for residential property.

Its a silly idea I propose to assume the mortgage is for business purposes. The House is NOT the business...renting it IS.

There is no tax relief on mortgages for residential property . They phased out Miras years ago.

Deducting the interest on mortgage prior to paying tax is not tax relief . The tax man paying a % of the interest like they did years ago is tax relief.

Share this post


Link to post
Share on other sites

I think one of the largest issues is the fact that for owner occupiers, income is taxed. For BTL landlords income is only taxed after mortgage interest losses.

So, as I understand it..

If you "earn" £10,000 a year from your rental, and you pay £10,000 a year in interest on the loan.. you can effectively say you are not making a profit and pay no tax at all.

On the other hand as a first time buyer.. if you purchase a house and the interest costs you £10,000 per year.. You still have to pay full tax on the income you earn to pay for it.

Simplistically for a 20% tax payer it costs you £12,500 to pay for the same mortgage that costs a BTL landlord £10,000 a year to service from his income. If you are a higher rate tax payer it costs you £16,666.

Based on this it is not hard to see why BTL landlords find it easy to outbid FTBers for houses in terms of mortgage affordability.

How to get around it.. minimum 20% tax on all revenue derived from residential property irrespective of deductibles?

I think you are getting a bit muddled up with what is classed as income . If you go to work and earn £12500 gross after 20% tax you take home £10,000 that is income.

If you earn £10k a year from your rental and pay £10k a year in interest you have as you said earn't fkall. It is the same as any other bussiness you take the Rental which is Gross profit pay out the costs and pay tax on the net profit if there is no net profit then you cannot be made to pay tax on the Gross profit .

Im not sticking up for BTL's and agree that they have pushed out the FTB , but there is no reason why they should be taxed differently from any other bussiness.

To outbid FTB's for mortgage affordability they will have to come up with the deposits to put down on purchase just like the FTB's . If they have the money to do this then yes they will outbid them , just like a seconed time buyer who sells his first house and comes out with some equity will be better placed to get a mortgage than a FTB.

Share this post


Link to post
Share on other sites

There is no tax relief on mortgages for residential property . They phased out Miras years ago.

Deducting the interest on mortgage prior to paying tax is not tax relief . The tax man paying a % of the interest like they did years ago is tax relief.

the interest is treated as a business expense and is therefore releived of tax liability as tax is paid on the net income.

Miras was the same in that the interest on the first 30K of mortgage was releived of tax....in that case via a coding change.

My point is that the house is NOT the business....the rental and utility of the house is.

It is unfair that a business can compete for a clear residential property unfairly with a tax advantage over a potential OO.

Share this post


Link to post
Share on other sites

the interest is treated as a business expense and is therefore releived of tax liability as tax is paid on the net income.

Miras was the same in that the interest on the first 30K of mortgage was releived of tax....in that case via a coding change.

My point is that the house is NOT the business....the rental and utility of the house is.

It is unfair that a business can compete for a clear residential property unfairly with a tax advantage over a potential OO.

Of course the interest is a business expense just like Desiel for a Cab driver would be. So as you say you pay tax on the net income , income received after costs.

Miras was not the same . Miras stands for ( Mortgage interest relief at source. ) The tax man chipped in to pay part of your interest. He did not deduct the interest from your gross wages and then tax your wages after that like a bussiness cost . He just paid part of the interest.

If someone went to work or worked for themselves they paid tax , a self employed person paid tax from their net profits i.e. Gross profit minus costs equalls net profit which was taxable. The tax man then paid part of your mortgage interest.

You could even get Miras if you were not paying tax they still paid part of the interest whether you had paid tax or not .

Don't understand your point that the house is not the business . ... the rental and utilty of the house is , no different to a hire car company are you going to tell me that a hire car company that buys cars does not rent out cars ?

OO are not bussiness they are end users BTL's are bussineses and should not be treated any differently to any other bussiness when it comes to tax .

Im not sticking up for BTL's and I know they have outbid the FTB's , but they should be taxed on net profits like any other bussiness.

Share this post


Link to post
Share on other sites

Im not sticking up for BTL's and I know they have outbid the FTB's , but they should be taxed on net profits like any other bussiness.

A typical business where someone works, pays 20% VAT, 50% Income Tax and around 12% National Insurance.

A typical BTL pays almost nothing.

Yet you think this is somehow the same??? b :o

A typical BTL gains wealth because their borrowings disappear through inflation and quantitative easing - this is not taxed.

Someone who gains no wealth at all (for example someone who owns a static amount of gold) gets taxed on imaginary capital gains.

Strange world.

Share this post


Link to post
Share on other sites

Of course the interest is a business expense just like Desiel for a Cab driver would be. So as you say you pay tax on the net income , income received after costs.

Miras was not the same . Miras stands for ( Mortgage interest relief at source. ) The tax man chipped in to pay part of your interest. He did not deduct the interest from your gross wages and then tax your wages after that like a bussiness cost . He just paid part of the interest.

If someone went to work or worked for themselves they paid tax , a self employed person paid tax from their net profits i.e. Gross profit minus costs equalls net profit which was taxable. The tax man then paid part of your mortgage interest.

You could even get Miras if you were not paying tax they still paid part of the interest whether you had paid tax or not .

Don't understand your point that the house is not the business . ... the rental and utilty of the house is , no different to a hire car company are you going to tell me that a hire car company that buys cars does not rent out cars ?

OO are not bussiness they are end users BTL's are bussineses and should not be treated any differently to any other bussiness when it comes to tax .

Im not sticking up for BTL's and I know they have outbid the FTB's , but they should be taxed on net profits like any other bussiness.

I think you misunderstood BlooLoo's point.. he wasn't calling for an end to MIRAS (which as you say don't exist any more), he was suggesting an end to tax relief on mortgage interest as a business cost.

As a way to help FTBers I don't see that it's a terrible idea.. just makes it more expensive for BTLers to leverage up on residential property, which partly answers the OP's question..

The other thing they need to tackle is the ability to switch primary residence in order that they never have to pay CGT on any of their properties despite claiming cost deductions against the interest on them as a business expense. The whole area needs properly cleaning up from top to bottom.

Edited by libspero

Share this post


Link to post
Share on other sites

A typical business where someone works, pays 20% VAT, 50% Income Tax and around 12% National Insurance.

A typical BTL pays almost nothing.

Yet you think this is somehow the same??? b :o

A typical BTL gains wealth because their borrowings disappear through inflation and quantitative easing - this is not taxed.

Someone who gains no wealth at all (for example someone who owns a static amount of gold) gets taxed on imaginary capital gains.

Strange world.

A business does not pay 20% vat they collect the vat the customers of the business pays the 20% vat.

To pay 50% tax they would have to earn over £100k net of any costs that would be deducted first and yes they would pay NI not sure if it is 12% if they are self employed depends how the business is set up , also with earnings they could pay themselves dividends and reduced the tax somewhat .

Some one with many BTLs could fall into the 50% tax rate if they earnt that amount of money just like any other business.

You Say a typical BTL gains wealth because their borrowings disappear through inflation and qe , well this happens for anyone that has bought any asset with debt .

You lost me with the Gold bit I know many who own it and never heard of anyone paying capital gains on the static value. You only pay GGT on a gain over the tax allowance threshold each year.

Share this post


Link to post
Share on other sites

You Say a typical BTL gains wealth because their borrowings disappear through inflation and qe , well this happens for anyone that has bought any asset with debt .

The point is that an OO can't offset mortgage interest against their income in order to lower their tax exposure.

A business can.

That is why there is an argument to be made for removing some or all of the tax break on mortgage interest to businesses investing in residential property in order to provide a slightly more level playing field for private buyers. If houses were a regular asset like a car it wouldn't matter.. but BTLers physically outbid FTBers for finite housing stock with deeper social implications.

Edited by libspero

Share this post


Link to post
Share on other sites

I think you misunderstood BlooLoo's point.. he wasn't calling for an end to MIRAS (which as you say don't exist any more), he was suggesting an end to tax relief on mortgage interest as a business cost.

As a way to help FTBers I don't see that it's a terrible idea.. just makes it more expensive for BTLers to leverage up on residential property, which partly answers the OP's question..

The other thing they need to tackle is the ability to switch primary residence in order that they never have to pay CGT on any of their properties despite claiming cost deductions against the interest on them as a business expense. The whole area needs properly cleaning up from top to bottom.

But it is a business cost .

I understand the point and if BTL was less attractive many new entrants would not have jumped in and priced out the FTB's.

If BTL's were taxed out of business overnight I don't know whether it would help FTB's as property might fall in value but would the banks be willing to lend to FTB's in a falling market ? Where we are now I think FTB's are fked either way , it should never have been allowed to come to this point.

The sad thing is that over the last 15 years property was allowed to boom in the way it did , even after GB said he would never alllow it to boom again the sooner they had put the brakes on the better but they did not.

The developers , the banks , the land owners , the BTL's , the nimbeys, the immigration policy are all to blame and we seem to be at a stale mate between a rock and a hard place .

At present no one in power has any decent idears and only policy is keep those who own property from defaulting as if there are mass defaults the whole country is in deep dudu.

We should never have got into this mess , how do we get out ? Who knows but fking over the BTL might hinder more people than it helps in the present situation .

Share this post


Link to post
Share on other sites

It's feasible, but not sensible.

IMHO there should be a higher rate of tax on capital anyway, to bring it in line with income.

Besides from that the BTL brigade need slaughtering not by higher tax, but by massive investment in housing that will crush the value of their assets.

Share this post


Link to post
Share on other sites

It's just a business, why should it be taxed in a different way?

BTL isn't a business, it's a government benefit. It is no different to child benefit or the dole.

Landlords hold a government permit allowing them to raise a tax within a specific geographical area, which makes them the lowest level of government, raising taxes and spending it on themselves.

To illustrate the point, consider what happens when some local planning official grants residential planning permission. The government simply hands the land-owner an artificially scarce resource, which they can then sell or rent. A government official signs a piece of paper, and magically the landlord is richer.

The value comes entirely from the government's creation of this artificial scarcity, and from the governments ability to inflict the costs of land hoarding onto a population that would otherwise demand compensation. It is a legalised protection racket.

The failure to distinguish between wealth creating business and parasitical wealth transference is pretty much why we are in the mess we are in. The country doesn't generate enough real wealth to support so many rich benefit scroungers.

Since it is a benefit, it shouldn't be taxed, it should just be withdrawn.

Edited by (Blizzard)

Share this post


Link to post
Share on other sites

Besides from that the BTL brigade need slaughtering not by higher tax, but by massive investment in housing that will crush the value of their assets.

My opinion is that building more houses won't help. Or at least won't help us much as it should. Not until property is no longer as an attractive investment vehicle, otherwise said new houses will just get bought by investors and then rented back to us.

I therefore welcome any ideas on how property investment is made less attractive.

Or failing that, if we are to accept renting as the new norm, we should push for better rights for long term tenants. And lower rent prices; new house building should sort that out in terms of supply/demand.

One or the other. Or both.

I'm also still very keen on an increase in self-build. How could tax be tweaked to help this?

Interesting ideas on tax for BTL though posters, good discussion.

Edited by ska_mna

Share this post


Link to post
Share on other sites

I was letting out my house when this rule change was introduced in the mid 90's. Suddenly I could add mortgage payments to my tax allowances together with repairs, depreciation of fittings,agent cots etc. It meant that my tax liability vanished. What I didn't see at the time was the implications for the housing market in UK. I suspect the Tory government of the day also did not predict the consequences.

The rule could be changed back again overnight. There is a moral imperative for doing it. It is a tax loophole that only benefits the wealthy. It pushes up housing costs for the poor. It reinforces the unequal division of wealth and prevents social mobility. It does everything that is anathema to all our major political parties. It has had a negative economic impact, sucking investment from job creating businesses. In return it has created a housing bubble that can only be kept inflated by massive tax breaks for the rich and 100s of billions in subsidy to BTL via housing benefits.

I can see why an engineering firm should claim a tax rebate against the finance costs of new plant and machinery. They're not competing for a limited resource that's also needed by the rest of the population. On the contrary, the loan to buy the machinery creates jobs and wealth. A landlord buying existing housing stock is totally different. He is buying up something at a tax payer funded discount (all of the mortgage interest can be reclaimed so the finance costs are zero), and in doing so is making that asset unavailable to an ordinary buyer. To make matters worse in most cases the income also comes from the taxpayer in the form of LHA.

I can see a case for landlords/developers to get tax breaks if they create new housing developments. An opening up of planning regs combined with tax allowances would in my view be well justified, and would support employment. In my view this is the only case in support of tax breaks for landlords.

Share this post


Link to post
Share on other sites

Btl's are subject to capital gains tax something owner occupiers don't have to worry about. They pay tax on their net income from their combined property portfolio at typically 40%. No tax evasion. Oh and most typical landlords would not touch a housing benefit recipient with a barge pole whatever they were offered, way too much hassle espeically if you are renting flats out the management company can threaten to remove your right to rent due to anti social behaviour. We do provide a service just as worthwhile as any one else, you can vote with your feet if you don't like a particular landlord or property.

Of course many landlords I know have no intention of selling and getting hit with capital gains tax , they are used in place of or additional to an annuity income stream they would get from a pension. Goes up fairly in line with inflation, can past it on to spouse and family when die and you can get access to the entire lump sum if you need to. No pension changes to worry about or annuity providers ripping you off when you retire.

The government is no longer in the business of building 3-400k council houses a year for rent so we need investors willing to fund private rentals. Please move on this is never going to happen.

Edited by mercsl

Share this post


Link to post
Share on other sites

The thing is, the UK is already fairly restrictive on landlords tax- and expense-wise.

In many European countries, it's much easier.. For example, there are often no separate btl mortgages, but you are instead allowed to rent out your house on a standard mortgage. And in some places, you can also offset implied depreciation of the house value against income for tax purposes (e.g. the purchase price amortised over 50 years counts as a business expense). There are of course usually also much stricter obligations on landlords and more rights for tenants.

Share this post


Link to post
Share on other sites

snip

The government is no longer in the business of building 3-400k council houses a year for rent so we need investors willing to fund private rentals. Please move on this is never going to happen.

which private investors are building homes?

Share this post


Link to post
Share on other sites

Btl's are subject to capital gains tax something owner occupiers don't have to worry about. They pay tax on their net income from their combined property portfolio at typically 40%. No tax evasion.

I think you have missed the point somewhat.

Firstly, BTL should be subject to capital gains, however many will just change their primary residence. I guess we can both agree that this should be clamped down on.

Secondly, nobody is claiming BTLers are evading tax.. there is simply a question over whether costs such as mortgage interest should be deductible when they are not for private entities.

Share this post


Link to post
Share on other sites

which private investors are building homes?

They are part of the demand mix for house builders so they are in effect funding development

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.