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

[Bloo Loo]

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

so none then. All they do is keep the price higher than OOs can afford buy outcompeting them in the cost of their borrowing.

The difference in tax paid on the income to support the mortgage is what teh BTLr tries to pocket. In other words, BTL is tax payer supported.

Great.

[plummet expert]

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

No, this is not correct. The Landlords mortgage and other expenses will be deducted from the income first. Then any that is left will be added to any other income s/he has and the rate applied like any other earnings. This could be none, if the property makes a loss, or if a profit then i may still be at basic rate or higher rate depending on LL other earnings. No need to change the law on this. It should however be impossible to get a BTL mortgage without a deposit of 35%. That way it will remove amateurs and stop them competing with FTB's and stop that pressure on prices. Perhaps they should not receive any personal allowance relief from CGT on a sale ? We would rather encourage investment and risk in the productive economy for all our long term sakes and not just buildings which should be much cheaper than currently?

[Bloo Loo]

No, this is not correct. The Landlords mortgage and other expenses will be deducted from the income first. Then any that is left will be added to any other income s/he has and the rate applied like any other earnings. This could be none, if the property makes a loss, or if a profit then i may still be at basic rate or higher rate depending on LL other earnings. No need to change the law on this. It should however be impossible to get a BTL mortgage without a deposit of 35%. That way it will remove amateurs and stop them competing with FTB's and stop that pressure on prices. Perhaps they should not receive any personal allowance relief from CGT on a sale ? We would rather encourage investment and risk in the productive economy for all our long term sakes and not just buildings which should be much cheaper than currently?

agree. I was being flippant.

from the way BTL is promoted, one is led to beleive ALL become property portfolio millionaires using other peoples money in weeks.

[mercsl]

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.

Flippers are a different thing , not blt'ers really who are typically looking at this as a pension annuity replacement.

Of course mortgage interest should be deductible, general principal of taxation is tax on the net income from an activity. Brokers fees are deductible for people trading shares for instance.

Simply no one would do btl if there was no tax relief on mortgage, an activity for the very rich. House prices would drop but there would be sod all to rent anywhere. Many would have to rent regardless of house drops, where does the government put them?

[sleepwello'nights]

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.

Your viewpoint applies to all businesses in the service sector. You could argue the shopkeeper doesn't create wealth, nor the street sweeper, nor pretty much most activities you care to name. This was a view economic theory held until it was dismissed as fallacious.

listened to Peter Schiff being interviewed last week where he expounded one of his basic tenets that the US needed to start manufacturing to rebalance their economy. It struck me that the US created a lot of wealth by developing intellectual ideas, and perhaps manufacturing itself is not the only way to generate wealth. I'm thinking of computer software, Microsoft, Google, Oracle. Then other concepts, Henry Fords production line was another wealth creating concept. OK it was to facilitate manufacturing but the idea itself was not manufacturing. Modern marketing and public relations create wealth, they're not manufacturing.

Are these all parasitical wealth transference that should be taxed out of existence?

[mercsl]

so none then. All they do is keep the price higher than OOs can afford buy outcompeting them in the cost of their borrowing.

The difference in tax paid on the income to support the mortgage is what teh BTLr tries to pocket. In other words, BTL is tax payer supported.

Great.

When you go to work you expect to get profit from it don't you?

Can't see how this is taxpayer supported, rules of taxation are pretty consistent for most business activities

Interest rates are double for btl mortgages than residential

Edited October 8, 2011 by mercsl

[mercsl]

There is a tax loophole that is a bit bizarre

If you have a residential property already and take out a residential mortgage (3.39%) on it you can show clearly that all the funds raised went to purchase a new btl you can deduct the interest payments against the rental income, avoiding the nearly 6% btl mortgages. This may work with an additional mortgage on the same property but the key is to show a clear trail what the money was used for. Weirdly you cannot use this method to remortgaged a btl you already have. The savings on a five year fixed between residential and btl mortgage would be in the region of 25k in interest over five years.

Edited October 8, 2011 by mercsl

[redgenieuk]

There is a tax loophole that is a bit bizarre

If you have a residential property already and take out a residential mortgage (3.39%) on it you can show clearly that all the funds raised went to purchase a new btl you can deduct the interest payments against the rental income, avoiding the nearly 6% btl mortgages. This may work with an additional mortgage on the same property but the key is to show a clear trail what the money was used for. Weirdly you cannot use this method to remortgaged a btl you already have. The savings on a five year fixed between residential and btl mortgage would be in the region of 25k in interest over five years.

That is NOT a tax break, it is called mortgage fraud.

[mercsl]

That is NOT a tax break, it is called mortgage fraud.

Nope not fraud , google it the tax office allows deductions on interest on your principle residence where shown mortgage raised against it used exclusively used on a newly purchased btl.

I couldn't believe it myself but it's true

Edited October 8, 2011 by mercsl

[redgenieuk]

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.

What utter drivel. It does suck, but it is still a business. An 'll conceived one maybe and one that needs a higher rate of capital gains tax, but it's not a government benefit.

[redgenieuk]

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.

Oh it will help.

It will help because it will hammer prices, but you have to build LOTS of houses. LOTS and LOTs!

Long term tenants rights being improved, I think that's sensible also however.

[Bloo Loo]

Flippers are a different thing , not blt'ers really who are typically looking at this as a pension annuity replacement.

Of course mortgage interest should be deductible, general principal of taxation is tax on the net income from an activity. Brokers fees are deductible for people trading shares for instance.

Simply no one would do btl if there was no tax relief on mortgage, an activity for the very rich. House prices would drop but there would be sod all to rent anywhere. Many would have to rent regardless of house drops, where does the government put them?

buying a house is an activity?

I would contend you are buying an asset. that is it. If you subesequently let it out, then that "business" has no bearing on the property itself. Specially as "the business" competes directly with ordinary buyers.

The problem here is really that any "business" can outbid anyone with equal income due to a tax break for the "business". the purchase would be the same for either the business or the OO. there is no difference.

Not sure how one can justify one method of purchase being net of tax, and the other not.

Now we have banks buying their own repos and getting a tax break on the interest they charge themselves.

[Bloo Loo]

What utter drivel. It does suck, but it is still a business. An 'll conceived one maybe and one that needs a higher rate of capital gains tax, but it's not a government benefit.

letting is a business.

buying a house is not. Only preconceived ideas can make buying a house into a business.

running it, repairing it, insuring it...sure thing........

[South Lorne]

letting is a business.

buying a house is not. Only preconceived ideas can make buying a house into a business.

running it, repairing it, insuring it...sure thing........

...yeah..who wants to be a janitor looking after a depreciating asset while it's often difficult to get the money from the customer even when the customer is given a government allowance...?...

[libspero]

Actually I have been fibbing..

It appears that it is technically possible for private buyers to avoid paying mortgage interest just like BTLers.

If you set yourself up as self employed then apparently you can offset your own mortgage interest and council tax against your income.

HM Revenue & Customs has started allowing self-employed workers to offset their mortgage interest and council tax against their annual income tax bill; an expense that accountants have historically believed to be off-limits.

New guidance issued by HMRC clarifies the validity of writing off mortgage payments, council tax and even home insurance against income tax for the first time. The move is likely to be welcomed by Britain's 3.6 million self-employed at a time when food and fuel costs are rising, and the economy is slowing.

Angela Beech, a partner at the accountancy firm Blick Rothenburg, said her company had been given the impression in the past that offsetting mortgage payments against income tax could have detrimental knock-on effects for the self-employed. "Historically, we steered clear of it," she said. "There was a fear that if you took mortgage interest as an expense, it could put your house in jeopardy of being free of Capital Gains Tax (CGT)."

Currently, taxpayers do not pay CGT on profits made on the sale of their primary residence, but if the residence was considered to be mainly used for business purposes, there was a risk that it could be deemed liable.

Linky

The question is, is it really fair that FTBers should have to set themselves up as businesses in order to have a fair chance of competing for mortgage affordability?

[mercsl]

buying a house is an activity?

I would contend you are buying an asset. that is it. If you subesequently let it out, then that "business" has no bearing on the property itself. Specially as "the business" competes directly with ordinary buyers.

The problem here is really that any "business" can outbid anyone with equal income due to a tax break for the "business". the purchase would be the same for either the business or the OO. there is no difference.

Not sure how one can justify one method of purchase being net of tax, and the other not.

Now we have banks buying their own repos and getting a tax break on the interest they charge themselves.

Tax is generated from the activity of renting the property, call it providing a service if you like that more

Being outbid was just the way it was back then , not just from btl'ers but everyone. Duel income households could and still can outbid single income households.

Without tax deductions on interest there is no incentive to supply private rental accommodation except from a few cash rich individuals. The government is out of the business of building homes for rent

[South Lorne]

....The question is, is it really fair that FTBers should have to set themselves up as businesses in order to have a fair chance of competing for mortgage affordability?

...seems reasonable...think of it ...they can off set all those Ebay / Paypal commissions and charges against and their mortgage interest .....good way to encourage entrepreneurs..and Ebay traders...get going....

Edited October 8, 2011 by South Lorne

[libspero]

Without tax deductions on interest there is no incentive to supply private rental accommodation except from a few cash rich individuals.

We should put it in perspective.. Less than a third of BTL properties have a mortgage against them so even if BTLers had to pay 100% of their mortgage interest it would only effect a third of the market. Secondly, having a limit to the amount of mortgage interest you can offset as a cost doesn't make BTL any less profitable unless your model depends heavily on leverage. It could be argued that perhaps people who rely almost entirely on leverage are not best placed to be offering secure and reliable tenancies to other people in the first place.

[Bloo Loo]

Tax is generated from the activity of renting the property, call it providing a service if you like that more

Being outbid was just the way it was back then , not just from btl'ers but everyone. Duel income households could and still can outbid single income households.

Without tax deductions on interest there is no incentive to supply private rental accommodation except from a few cash rich individuals. The government is out of the business of building homes for rent

imagine the food supply chain, and there is the market a whole village has to go to ( the housing market is one market of course).

imagine the shoppers going there every day to buy their food.

Then one day, the shoppers find that the assistants have changed...they are now a load of spivs and prices are all up 20%. Why they ask? the spivs say, we told the shopkeeper to go home, we bought ALL his stock with a credit card.

course, we have to cover the interest costs and our risk, so the prices need to rise.

I think people would be a little peeved at the above, calling it "cornering the market" or a "scam".

Why they dont see this with BTL I have no idea.

I have no problem with Own to Let....I have a big problem with BORROW to let.

[Bloo Loo]

Actually I have been fibbing..

It appears that it is technically possible for private buyers to avoid paying mortgage interest just like BTLers.

If you set yourself up as self employed then apparently you can offset your own mortgage interest and council tax against your income.

Linky

The question is, is it really fair that FTBers should have to set themselves up as businesses in order to have a fair chance of competing for mortgage affordability?

we have always done this....but only for the rooms used in the business...and of course, we rent.

[Willy Wonka]

If btlv a business then interest should be deductible BUT then the business should pay employer and employee NIC.

If its private then ok no NIC but interest NOT deductible.

At the Monet its the best of both.

[CleverBear]

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.

Agreed. Something needs to done to prevent BTL. I would suggest greatly enhanced tenants rights as a first step. This could be easily achieved politically and would have the support of the public.

[CleverBear]

Flippers are a different thing , not blt'ers really who are typically looking at this as a pension annuity replacement.

Of course mortgage interest should be deductible, general principal of taxation is tax on the net income from an activity. Brokers fees are deductible for people trading shares for instance.

Simply no one would do btl if there was no tax relief on mortgage, an activity for the very rich. House prices would drop but there would be sod all to rent anywhere. Many would have to rent regardless of house drops, where does the government put them?

No they dont. The very poorest can get council housing (there is still some of it), and the rest will be able to afford because there will be houses these people can afford. Even someone on a very low job will be able to get a flat to live. Sure it wont be nice but it will be theres. If they got rid of BTL scum then the bottom of the market would probably have a load of £10k-£20k flats which even people on next to no money could buy.

[libspero]

Agreed. Something needs to done to prevent BTL. I would suggest greatly enhanced tenants rights as a first step.

100% agree.

I'm not trying to drive Mercsl out of business, but I would like to see less reliance on leverage in the BTL sector and much higher standards such as are seen in Europe.

I don't think anyone begrudges professional BTLers providing a good service in return for modest reward. The issue as I see it is that many landlords to date appear far more interested in property speculation than providing a customer facing service. This is the bit that needs to change.

[mercsl]

imagine the food supply chain, and there is the market a whole village has to go to ( the housing market is one market of course).

imagine the shoppers going there every day to buy their food.

Then one day, the shoppers find that the assistants have changed...they are now a load of spivs and prices are all up 20%. Why they ask? the spivs say, we told the shopkeeper to go home, we bought ALL his stock with a credit card.

course, we have to cover the interest costs and our risk, so the prices need to rise.

I think people would be a little peeved at the above, calling it "cornering the market" or a "scam".

Why they dont see this with BTL I have no idea.

I have no problem with Own to Let....I have a big problem with BORROW to let.

Debt has always been a big factor in buying houses so your analogy does not work. The only reason home ownership got to 70% in the uk is debt provided to the average Joe over the years. Yes may be able to borrow more but same went for btl as for households with duel income.