How Osborne Could Kill Btl

[Venger]

On debtors - if you re-read what I wrote it was simply pointing out that the larger land game originates from socially forced transfer payments and economic rents (privatised rents and socialised wages); and that suddenly stopping them would obviously upend and clarify the system/pricing. I did not take that further to claim it's something I believe in as a resolution of local, general or balance sheets inequities the day after.

In my world, which I wouldn't claim is the best, there are times for moral priorities and times for practical priorities. I will remain inconsistent as factors change (prices, blame, extent of social rogering). If Government decide to do the right thing by moving towards an environment of socialised resource rents and privatised wages/life that will also direct my opinions.

If you can hold a consistent theoretical and practical view over periods such as these then good for you. I can't and see no point in pretending otherwise even on a forum.

All fine providing debtor defaults lead to you also losing your house, as well as savers being wiped out.

You admit to slow and late realisation that BTL is not a harmless service provision in the bubble world, but now admit to practice trumping ethics, leaving open the possibility you will return to re-entering landlording if price trends change to advantage.

While positioning yourself as wanting wider fairness for those being f----- over today, and finding it hard to blame those buying houses at painfully high prices in a market. No one is forcing them to pay these prices (x6 year repeat vs x6 years more HPI against renter-savers). They don't expect or need a debtor side forgiveness. It's a market.

Previous:

I don't know either, but once upon a time I thought I understood money, credit and land but I was very wrong. Much of that re-learning process occured and is still occuring from reading and discussion here. I'd like to think others can do the same - even if (like me) that journey begins with believing in and arguing for nonsense.

Hmm ok. You suggest hpc has qualities of 'echo-chamber' - and want us to take it easy on those with other views, but you want to see more posters joining HPC posting nonsense, to find hidden wisdoms maybe? It's a shame you took the actions to delete your old HPC forum account.. would have liked to see the wisdoms/positions you held previously (I only have some memory).. gone now.

To some extent we already have that (probing nonsense), but I don't want to be swamped with it - and distracted by in the name of forum politeness to allow all views and not bluntly dismiss them or call them out as deceptive. I want to keep some focus in reality, and not be dragged off-focus from the common-purpose some of us have; lower house prices / landlord speculators removed from market / improved tenant rights and so on.

However it’s no secret, I can tell you what I used to think: That land and property markets work as the media tells us, that rentiers mostly deserve what they ‘earn’, that BTL is harmless service provision, that banks are just intermediaries of loanable funds, that government finances are like private sector finances which are like household finances, that impossible funding of interest payments is the ponzi scam of all time, that creditors exist in a world largely sheltered from debtors, that trickle down is evidentially correct, that the BoE is independent, that inflation is going to skyrocket, that interest rates might too, that the economic end is nigh …etc.

That was nonsense, and I was wrong. I’m not entirely sure why you're persisting with this approach given the context of what I've actually said rather than what might be assumed from snippets. I believe in progress through alternative opinion, disagreement, logic & learning. I don't apologise for it so suggest we leave it at that.

[Guest_northshore_*]

All fine providing debtor defaults lead to you also losing your house, as well as savers being wiped out.

You admit to slow and late realisation that BTL is not a harmless service provision in the bubble world, but now admit to practice trumping ethics, leaving open the possibility you will return to re-entering landlording if price trends change to advantage.

While positioning yourself as wanting wider fairness for those being f----- over today, and finding it hard to blame those buying houses at painfully high prices in a market. No one is forcing them to pay these prices (x6 year repeat vs x6 years more HPI against renter-savers). They don't expect or need a debtor side forgiveness. It's a market.

Previous:

I've never claimed immunity to practical hypocrisy, in addition to error. Note again that you know these things because I wrote them.

I'm ok with not having a fixed practical stance on everything, and regularly changing my understanding with evidence and/or circumstances. What someone on a forum thinks of it is not on my list of prioritising factors, particularly when it doesn't matter what I write when every sentence can still take on whatever contextual meaning someone else chooses.

[Neverwhere]

The simplest way to discover who is driving house prices is to look at the changes in tenure.

At the moment the number of houses owned without a mortgage and in the private rented sector are increasing. The number of households in the public rented sector is pretty stable. The number of owners with mortgages is in sharp decline, so these houses are either having the mortgages paid off completely or being bought by landlords.

The net flow of housing into the private rented sector means that prevailing prices are set by those purchasers.

That does seem like a reasonable assessment to make. Equally it's seems logical that interest only financing would tend to encourage higher house prices than repayment financing given the money available to make monthly payments is broadly the same (in both cases being derived from the would be owner occupier's / tenant's wages). Rising prices often then lead to more speculation and looser lending standards, which push prices up further, and can lead to great confidence in price rises and even more speculation and looser lending standards. It's a feedback loop and the mechanism by which it currently appears to be operating is buy-to-let interest only lending (obviously there have been other mechanisms in the past).

A key thing to consider in the context of this thread is that the high amount of re-financing in the buy-to-let sector, whilst obviously partly accounted for by normal market churn as mortgagors attempt to avoid SVRs, seems to support the idea that mortgage equity withdrawal has been widespread in this sector and so any semblance of price discovery has been taken out of the equation in these cases. The banks and the BTLers have decided what these properties are worth and then they have reified those prices - in their eyes at least - by lending and borrowing money against them.

When there is no transaction at all and where gains can be extracted tax free and interest can be payable on those gains indefinitely then both parties - the banks and the BTLers - are effectively incentivised to push house prices as high as possible. Technically when equity is actively withdrawn from the portfolio for personal use in this manner then the BTLer cannot legally deduct the interest costs for that part of the financing from their rental income (see HMRC BIM45705). Whether or not this is actually happening in practice is debatable. Either way the current tax environment actively encourages MEWing at high valuations as capital gains tax is only paid once the property is sold and not on MEWed gains, which can legitimately be taken tax free in order to fund further property purchase and expand the portfolio. As rental income is subject to income tax but not when it is used to pay interest on legitimate financing, the MEWing BTLer is in practice trading taxed funds (rent) for untaxed funds (mortgage equity).

In practice - as set out in Frizzers's article and Bland Unsight's formula and book (and also widely complained about on the various landlord fora, though in somewhat different terms) - it seems that a subset of BTLers may have MEWed away their capital gains without making any provision to pay their CGT once it falls due. In order for this to be the case they must either be carrying a loss on their portfolio since it was last re-financed (indicating that MEWing does encourage excessively high valuations) or they must have used re-financing to fund personal expenditure outside of their property portfolio. Whichever the case may be, and I suspect there would be a significant amount of variance, any BTLer who is in this highly leveraged position is likely to also be adversely affected by the upcoming changes to how their finance costs are treated for tax purposes.

Edit: Some BTLers appear to be drawing up plans to go into tax exile precisely for this reason, but whether or not this is actually a viable personal solution for them remains to be seen.

HS278 Temporary non-residents and Capital Gains Tax (2015), HMRC Guidance

But an individual who is not resident in the UK may nonetheless be taxed on certain gains if they are carrying on a trade in the UK through a branch or agency. The taxable gains will be those which arise on disposals of assets which are (or have been) used for the purposes of that trade or of the branch or agency.

Edited September 10, 2015 by Neverwhere

[pipllman]

Yes I share the view that MEWing has been abused considerably. Not only by BTL by the way, also by OO.

For BTL, doing a remortgage to release funds to create a deposit for a further purchase does mean that the deposit has been created either as an untaxed capital gain, or as borrowed money, or both.

Whilst a FTB can borrow money for a deposit, that is then treated harshly in mortgage applications since MMR. Whichever way you look at it, the FTB is disadvantaged versus a MEWed deposit.

I am quite sure there are examples where some or all of the MEW released money has not been used to fund future deposits and has, in fact, been used as spending money by the recipient. It would not surprise me if a subset of that group had not declared that fully on their tax returns and are at risk of having over claimed tax relief as a result.

Now, as well as BTLers MEWing, there are plenty of OO that have also MEWed. Some for sound reasons: to finance an extension for instance, I would judge that as a sound reason. Others for less sound reasons: for a cruise, for a new car, for a big telly, I would judge such things as bonkers reasons.

Anyone that has MEWed themselves into a position that they can't afford - either as a result of interest rates going up, or as a result of a CGT liability arising that wasn't properly taken into consideration at the time, or whatever - has only themself to blame for that predicament.

They have my sympathy for any grief it will cause them to deal with the situation, but it is for them alone to deal with and pay for.

[Neverwhere]

Yes I share the view that MEWing has been abused considerably. Not only by BTL by the way, also by OO.

For BTL, doing a remortgage to release funds to create a deposit for a further purchase does mean that the deposit has been created either as an untaxed capital gain, or as borrowed money, or both.

Whilst a FTB can borrow money for a deposit, that is then treated harshly in mortgage applications since MMR. Whichever way you look at it, the FTB is disadvantaged versus a MEWed deposit.

I am quite sure there are examples where some or all of the MEW released money has not been used to fund future deposits and has, in fact, been used as spending money by the recipient. It would not surprise me if a subset of that group had not declared that fully on their tax returns and are at risk of having over claimed tax relief as a result.

Now, as well as BTLers MEWing, there are plenty of OO that have also MEWed. Some for sound reasons: to finance an extension for instance, I would judge that as a sound reason. Others for less sound reasons: for a cruise, for a new car, for a big telly, I would judge such things as bonkers reasons.

Anyone that has MEWed themselves into a position that they can't afford - either as a result of interest rates going up, or as a result of a CGT liability arising that wasn't properly taken into consideration at the time, or whatever - has only themself to blame for that predicament.

They have my sympathy for any grief it will cause them to deal with the situation, but it is for them alone to deal with and pay for.

I think that's key in terms of political motivation. From that perspective comparisons with existing OOs are neither here nor there when the competition BTL presents is with FTBers. In terms of economic motivation it's not so much BTL versus OO as it is IO versus repayment. As IO is effectively off the table for new entrant OO at this point IO BTL is the primary expanding area of mortgage credit to potentially pose a significant risk to financial stability and the wider economy.

[Guest_growlers_*]

http://m.mortgagestrategy.co.uk/2023525.article?mobilesite=enabled

“As much as we would love to see a U-turn, we are realistic and we have been told categorically that it is not going to happen.

But Norris says the NLA is lobbying the Government to introduce business asset roll-over relief so that landlords do not end up paying capital gains tax twice if they decide to restructure their portfolios when the change comes in.

He adds: “Almost any other business can sell underperforming assets and reinvest and defer that CGT until they sell the whole business.

“If a landlord has made a gain on their property – which is quite likely – they will pay CGT on the sale and take whatever they have left, but when they come to sell up they will pay again.”

Interesting...

The paying CGT twice bit is a bit of a moronic statement. CGT is paid one on each quantum of gain.

Edited September 10, 2015 by growlers

[Neverwhere]

http://m.mortgagestrategy.co.uk/2023525.article?mobilesite=enabled

“As much as we would love to see a U-turn, we are realistic and we have been told categorically that it is not going to happen.

But Norris says the NLA is lobbying the Government to introduce business asset roll-over relief so that landlords do not end up paying capital gains tax twice if they decide to restructure their portfolios when the change comes in.

He adds: “Almost any other business can sell underperforming assets and reinvest and defer that CGT until they sell the whole business.

“If a landlord has made a gain on their property – which is quite likely – they will pay CGT on the sale and take whatever they have left, but when they come to sell up they will pay again.”

Interesting."

If they're businesses then surely they have to start paying NICs as per the discussion here?

[Guest_northshore_*]

If they're businesses then surely they have to start paying NICs as per the discussion here?

Quite. And if roll-over is the concern they obviously would't mind if Treasury only charges CGT once - on the first sale.

[Neverwhere]

Mark Alexander 12/09/2015 at 22:35

Hi Laurie

Your proposed structure would not work between a company and an individual landlord. This is because the landlord would need income to pay his/her mortgage. That income would be taxable and the finance costs could not be offset.

There are four tax planning strategies that I am aware of, however, they are probably not cost effective to implement for portfolio’s worth less that £5million due to fees being a minimum of £50,000. For details see >>> http://www.property118.com/tax-efficient-incorporation-landlords/77519/

I am unable to share details of these tax planning strategies because I am bound by a very tight NDA with the professional advisers I am working with.

Jon Pipllman 13/09/2015 at 09:04

Whatever you do as your attempt to mitigate these tax changes, never mention to anyone at all that the changes you make are anything to do with tax (let alone driven by tax)

The very last thing you want is for HMRC to suggest that your scheme is a construct to avoid tax and treat it as such

Read up on GAAR

Always take proper professional advice (and expect to pay for it) specific to your own circumstances and, ideally, with robust insurance in place to cover any claims about reduced tax liability

If a scheme suggests that it will reduce tax, but is not guaranteed, tread warily and be as sure as you feel you need to be before risking all the potential tax savings and fees

IMO for anything that claims to avoid SDLT, tread especially lightly: the track record of HMRC in dealing with SDLT avoidance plans is rather impressive – it doesn’t miss much SDLT money that it thinks is due

For instance, I wouldn’t want to be first to test at tribunal if it is OK to push properties through any sort of partnership into a company to avoid SDLT, whatever the broader changes around structure and workload on the Directors / employees of the new arrangement are.

If you do take steps to avoid the new tax liability, I wish you well with it. If you are expecting it to be easy or cheap (in £, time or effort) to achieve and maintain, you are probably mistaken.

Mark Alexander 13/09/2015 at 09:19

Reply to the comment left by “Jon Pipllman” at “13/09/2015 – 09:04“:

I completely agree with you on the point of taking insured professional advice.

The law regarding tax avoidance was clarified nearly 80 years ago.

In 1936 a landmark legal case was heard in the House of Lords (Inland Revenue Commissioners v Duke of Westminster [ 1936 ] AC1 (HL)). The Duke of Westminster won the case. The judge, Lord Tomlin, stated:

“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax”

The latter part of Lord Tomlin’s statement could so easily be applied today to the unpopular tax strategies used by the likes of Amazon, and indeed the advice that landlords could be made privy to.

Incorporation of a partnership legitimately avoids SDLT. For sole traders who are married it is not difficult to create a partnership by transferring part of the beneficial ownership of a property to a spouse via a declaration of trust – see >>> http://buytoletconveyancing.co.uk/declaration-of-trust/

Once HMRC recognise your business as a partnership it’s time to seek professional advice on incorporation relief to avoid CGT. Better still, obtain the correct advice for the entire process before doing anything – see >>> http://www.property118.com/tax-efficient-incorporation-landlords/77519/

SDLT and CGT only become payable when an asset is actually transferred. This may not be necessary – see http://www.property118.com/tax-efficient-incorporation-landlords/77519/

Finally you need to consider the costs of refinancing. If you don’t actually transfer the legal ownership of the asset or change/affect the lenders security then there may not be a need to refinance – again see >>> http://www.property118.com/tax-efficient-incorporation-landlords/77519/

The tax planning strategies our advisers recommend are enshrined in law and have been used for several generations by gentry, they are not something new or untested, neither are they DOTAS schemes such as SDLT schemes and Film Partnership arrangements you may have come across.

There are no less than four strategies available.

The advice itself only costs £5,000, it is the implementation that costs the rest.

The above really is as much as I can divulge publicly.

Jon Pipllman 13/09/2015 at 09:38

There are arrangements that I can see would work for some people. There are some that I have seen that are borderline and some that are non starters (all equally expensive by the way).

GAAR changes the rules on tax avoidance considerably. Indeed, the 1936 Duke of Westminster case is specifically mentioned and is no longer quite so set in stone as it was pre GAAR

It is worth reading up on GAAR and thinking where it might lead to in future

The Westminster case is specifically cited in B2.2 (page 4)

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/399270/2__HMRC_GAAR_Guidance_Parts_A-C_with_effect_from_30_January_2015_AD_V6.pdf

I will leave this thread with a repeat that both Mark and I are correctly making: seek proper professional insured advice specific to your own circumstances. Make sure you wholly understand that advice and the answer to as many variants of the question – what happens if…?

Do not make significant changes to the way you structure and run your business based only on something you have read on a forum

Mark Alexander 13/09/2015 at 10:07

Reply to the comment left by “Jon Pipllman” at “13/09/2015 – 09:38“:

Hi Jon

Yes I agree that any landlords considering tax planning “schemes” should ask all of the questions you have raised and also familiarise themselves with GAAR.

The following paragraph is particularly useful:-

B4 What the GAAR is not targeted at

B4.1 Just as it is essential to understand what the GAAR is targeted at, so it is equally essential to understand what it is not targeted at.

B4.2 Underlying the GAAR legislation is the recognition that, under the UK’s tax code, in many circumstances there are different courses of action that a taxpayer can quite properly choose between. The GAAR is carefully constructed to include a number of safeguards that ensure that any reasonable choice of a course of action is kept outside the target area of the GAAR.

B4.3 To take an obvious example, a taxpayer deciding to carry on a trade can do so either as a sole trader or through a limited company whose shares he or she owns and where he or she works as an employee. Such a choice is completely outside the target area of the GAAR, and once such a company starts to earn profits a decision to accumulate most of the profits to be paid out in the future by way of dividend, rather than immediately paying a larger salary, is again something that should in any normal trading circumstances be outside the target area of the GAAR.

HM Revenue and Customs (HMRC) General Anti Abuse Rule (GAAR) guidance (Approved by the Advisory Panel with effect from 30 January 2015)

. . .

B2 The fundamental approach of the GAAR

B2.1 The GAAR Study Group Report was based on the premise that the levying of tax is the principal mechanism by which the state pays for the services and facilities that it provides for its citizens, and that all taxpayers should pay their fair contribution. This same premise underlies the GAAR. It therefore rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position.

B2.2 Amongst these Court decisions the following are routinely cited as providing legitimacy to even the most abusive tax avoidance schemes:

“My Lords, the highest authorities have always recognised that the subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown, so far as he can do so within the law, and that he may legitimately claim the advantage of any express terms or of any omissions that he can find in his favour in taxing Acts. In so doing, he neither comes under liability nor incurs blame.” [Lord Sumner in Fisher’s Executors v CIR [1926] AC395]

“Every man is entitled if he can to order his affairs so that the tax attracted under the appropriate Act is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.” [Lord Tomlin in Duke of Westminster v CIR [1936] AC1]

“No man in this country is under the smallest obligation, moral or other, so as to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer’s pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.” [Lord Clyde in Ayrshire Pullman v CIR (1929) 14TC754]

B2.3 The last quote from the judgment of Lord Clyde in the Ayrshire Pullman case epitomises the approach which Parliament has rejected in enacting the GAAR legislation. Taxation is not to be treated as a game where taxpayers can indulge in any ingenious scheme in order to eliminate or reduce their tax liability.

B2.4 Accordingly, it is essential to appreciate that, so far as the operation of the GAAR is concerned, Parliament has decisively rejected this approach, and has imposed an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill. That limit is reached when the arrangements put in place by the taxpayer to achieve that purpose go beyond anything which could reasonably be regarded as a reasonable course of action.

I'm sure this goes without saying for most here but whilst GAAR of course allows for individuals to legitimately choose different courses of action in terms of incorporating or not incorporating, it very obviously is applicable to the avoidance of tax when transferring between such states and this may in fact be an area that it is actively targeted at.

Edited September 13, 2015 by Neverwhere

[Bland Unsight]

Isn't the whole point of the Osborne's position, and thus the Revenue's position, that somebody holding a portfolio of investment properties is not necessarily operating a business? Likewise they are going to struggle with the badges of trade required to have the portfolio taken as a trade.

It's all very well to argue that GAAR allows a sole trader to roll into a company without anxiety but that's exactly the point. Is BTL a trade?

Consider the Revenue on the badges of trade here. and in particular BIM20310 - Meaning of trade: badges of trade: interval of time between purchase and sale:

In Marson v Morton and Others [1986] 59TC381, at page 392, the vice chancellor said, when discussing the badges of trade:

‘What were the purchasers’ intentions as to resale at the time of purchase? If there was an intention to hold the object indefinitely, albeit with an intention to make a capital profit at the end of the day, that is a pointer towards a pure investment as opposed to a trading deal. On the other hand, if before the contract of purchase is made a contract for resale is already in place, that is a very strong pointer towards a trading deal rather than an investment. Similarly, an intention to resell in the short term rather than the long term is some indication against concluding that the transaction was by way of investment rather than by way of a deal.’

He went to say that this factor was in no way decisive by itself.

In my opinion, which is worth very little in this context, one ought to admit that assuming that the courts will treat your portfolio as a trade not an investment when the drift of government policy is to say that your portfolio is to be taxed as a leveraged investment and not a trading business is to play a dangerous game. The adjustment to the treatment of mortgage interest is a political statement regarding the incumbent government's assessment of buy-to-let. They are going to tax private individuals as if it is an investment with borrowed money and not a business.

Surely, there's an eyes on horizon argument here.

The leveraged landlords have a problem because in the future their portfolios are going to be taxed as investments, (because the government had decided to treat buy-to-let as leveraged investment). Hence assuming you are conducting a trade and can thus duck into a corporate wrapper and avoid the hit on the income tax is to adopt a strategy which says that you are right and the people who make the laws are wrong. The problem is that they make the laws.

If they want to use the law to force you to divest, then given that you are from a political standpoint a tiny bunch of friendless losers, you are going to have to divest.

(Just watching the first bit of the video and a credit pops up Osborne Street 1986 - it appears Tim Finn lived in a house on a street of that name, presumably where he wrote the song - same spelling too! )

Edited September 13, 2015 by Bland Unsight

[Neverwhere]

...It's all very well to argue that GAAR allows a sole trader to roll into a company without anxiety but that's exactly the point...

GAAR doesn't even allow for that. It allows that taxpayers can choose to operate as sole traders. It allows that they can choose to operate as incorporated companies. It does not allow that they can do anything they like to avoid tax when transferring between the two states.

...Is BTL a trade?

Consider the Revenue on the badges of trade here. and in particular BIM20310 - Meaning of trade: badges of trade: interval of time between purchase and sale:

In Marson v Morton and Others [1986] 59TC381, at page 392, the vice chancellor said, when discussing the badges of trade:

‘What were the purchasers’ intentions as to resale at the time of purchase? If there was an intention to hold the object indefinitely, albeit with an intention to make a capital profit at the end of the day, that is a pointer towards a pure investment as opposed to a trading deal. On the other hand, if before the contract of purchase is made a contract for resale is already in place, that is a very strong pointer towards a trading deal rather than an investment. Similarly, an intention to resell in the short term rather than the long term is some indication against concluding that the transaction was by way of investment rather than by way of a deal.’

He went to say that this factor was in no way decisive by itself.

In my opinion, which is worth very little in this context, one ought to admit that assuming that the courts will treat your portfolio as a trade not an investment when the drift of government policy is to say that your portfolio is to be taxed as a leveraged investment and not a trading business is to play a dangerous game. The adjustment to the treatment of mortgage interest is a political statement regarding the incumbent government's assessment of buy-to-let. They are going to tax private individuals as if it is an investment with borrowed money and not a business...

If anyone successfully argues in court that all landlords are operating as sole traders then every landlord who has gone into tax exile in order to avoid capital gains tax will suddenly find that they owe very large sums of money to HMRC. If BTL is a trade - and I tend to agree with your assessment that it is not - then CGT is due in full regardless of where the BTLer in question is tax resident:

HS278 Temporary non-residents and Capital Gains Tax (2015), HMRC Guidance

But an individual who is not resident in the UK may nonetheless be taxed on certain gains if they are carrying on a trade in the UK through a branch or agency. The taxable gains will be those which arise on disposals of assets which are (or have been) used for the purposes of that trade or of the branch or agency.

[The Knimbies who say No]

Richard Dyson used the term 'investor' on Twitter recently to describe BTLers so it seems that the accurate term is determined by expediently assessing the narrow point under discussion.

If they are businesses, they ought to be doing what businesses do.

If they are retail investors, they ought not to be borrowing money.

End of bloody story.

[Bland Unsight]

Richard Dyson used the term 'investor' on Twitter recently to describe BTLers so it seems that the accurate term is determined by expediently assessing the narrow point under discussion.

If they are businesses, they ought to be doing what businesses do.

If they are retail investors, they ought not to be borrowing money.

End of bloody story.

It's all very well these clowns trying to have their cake and eat it too when arguing on the internet, (or agreeing with each other on the internet). Making that tactic working in the courts and HMRC tribunals is going to be a trickier proposition.

[pipllman]

AIUI a really hands on BTL landlord can easily pass the test to prove she is operating a business

One that outsources everything to 3rd parties and has no day to day involvement in matters would find it more difficult

It is also fine, even under GAAR, to decide to incorporate that business (or indeed that investment, it doesn't need to be a business to be a ltd)

However, where things get a bit grey is where the incorporation is done as a way of reducing the tax bill. HMRC might decide that any particular incorporation is simply a construct to avoid the tax that was due when the business / investment was unincorporated. HMRC could then, under GAAR and other legislation, say that the incorporation fails the reasonableness test (i.e. it is more than a reasonable person would think reasonable as a way of minimising the tax liability).

At that point HMRC now has the upper hand: the taxpayer has to tip up the assessed tax and then fight to prove HMRC wrong.

Moreover, on SDLT avoidance on incorporation, there are schemes proposed which are obviously set up wholly as a way of avoiding SDLT. HMRC doesn't like that and has a very good record of over turning such schemes.

I wouldn't want to be a test case for HMRC on any such scheme and nor would anyone that ends up being a test case.

The point I was making on 118 was that people considering such schemes should tread carefully, not act only on something seen on a forum and take professional, insured advice after asking lots of questions.

It might be that some can and will incorporate and significantly reduce the tax bill they would otherwise face. That's OK. But some will get it wrong and it will cost them lots of £, time and effort. That's OK too.

[Venger]

£50,000 in fees, including £5,000 initial advice.

One of the biggest BTL forums on the internet, and the main guy looking at taking these measures, and not able to share professional advice with the BTL followers, due to tight NDA with professional advisers ('enshrined in law' and used by the gentry for several generations?)

The tax planning strategies our advisers recommend are enshrined in law and have been used for several generations by gentry, they are not something new or untested, neither are they DOTAS schemes such as SDLT schemes and Film Partnership arrangements you may have come across.

There are no less than four strategies available.

The advice itself only costs £5,000, it is the implementation that costs the rest.

The above really is as much as I can divulge publicly.

I would have though the Gentry who have paid such fees more or less sorted out their affairs in advance for the long term.

[Venger]

Below is just to back down slightly to pipllman. It was always a possibility Mark118 types would seek/pay for such advice.

My main point still holds, that I can't see the average BTL paying big fees for professional advice for their own individual circumstances. Surely difficult or them to stomach when they thought it was easy HPI, Generation Forever Rent, to be paying high fees for individual professional advice... where they even have the money.

Where they thought Web 2.0 Tribey/LLZ was all the free resource they needed with fellow BTLers sharing info and resources. Although if more of them do seek professional advice, and the fees that come with it, that's a double-win anyway.

but surely the GAAR would be classified as an appropriate act in any proper interpretation of the 1936 case?

That would be an entirely nonsensical interpretation given GAAR expressly rejects that judgment:

"Accordingly, it is essential to appreciate that, so far as the operation of the GAAR is concerned, Parliament has decisively rejected this approach, and has imposed an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill."

I notice that summary includes wording that will have enabled many tax lawyers to breathe a sigh of relief - they will still have the chance to charge top fees to would be tax avoiders in arguing the 'reasonableness' of their schemes:

"That limit is reached when the arrangements put in place by the taxpayer to achieve that purpose go beyond anything which could reasonably be regarded as a reasonable course of action."

That would be an entirely nonsensical interpretation given GAAR expressly rejects that judgment:

"Accordingly, it is essential to appreciate that, so far as the operation of the GAAR is concerned, Parliament has decisively rejected this approach, and has imposed an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill."

I notice that summary includes wording that will have enabled many tax lawyers to breathe a sigh of relief - they will still have the chance to charge top fees to would be tax avoiders in arguing the 'reasonableness' of their schemes:

"That limit is reached when the arrangements put in place by the taxpayer to achieve that purpose go beyond anything which could reasonably be regarded as a reasonable course of action."

I don't expect many of them to take that approach and pay large fees to professional tax solicitors. (If many of them even have any money left as the squeeze comes in.) Everything you need to know re BTL investment is Web 2.0 shared on da internet innit, with da Tribes, for free.

Including the info Mark Alexander has been posting on the 118 forum, that you - also a multiple property landlord - repeated here at HPC and claimed still stands. Neverwhere had to explain it again to you, twice.

“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax”

that still stands, but the taxpayer should always remember that it is the government that controls the 'appropriate Acts' and, if enough people find a scheme that enables them to pay tax at a rate that would make the Starbucks CFO blush, the government is likely to knobbly said scheme

What can professionals tell them anyway when some of the BTLers criticise PhDs who refuse to pay these house prices as lacking scientific rigour to the facts of forever HPI?

That would be an entirely nonsensical interpretation given GAAR expressly rejects that judgment:

"Accordingly, it is essential to appreciate that, so far as the operation of the GAAR is concerned, Parliament has decisively rejected this approach, and has imposed an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill."

True, their appetite for legal bills is diminished after cases such as 'west brom'

That said, there are enough of them wriggling to find ways round the tax changes - the latest nonsense I have seen is about assigning the beneficial interest in the property to a Ltd by a deed of trust - that a couple of schemes might arise.

We have seen 'high leverage continuous mew IO join a property sourcing club' sold (for a chunky fee in many cases) as a business model. Maybe someone will pop up with an avoidance scheme that they successfully sell to some btl in sufficient numbers that it eventually make it to a tribunal sometime.

Away from btl, consider that rash of sdlt avoidance schemes that did the rounds a few years ago. All total nonsense and all starting to come undone after the merest prod from hmrc. Yet they sold in fairly big numbers. Lots of people are attracted by 'legal tax avoidance' and the reasonableness test leaves scope for such schemes to continue to be devised.

None is likely to survive scrutiny, but that doesn't stop people making money from selling them to people.

Let's see.

[pipllman]

The advice, from a suitably qualified and insured accountant / tax adviser, could easily cost £5k

The implementation would be quite pricey - basically you have to do most of the process separately for each house and there can be several stages for each property. If you reckon on legals to buy / sell a house being £750 each side, then £45k is the cost associated with 30 houses. It isn't outside the realm of possibility.

The cost of dealing with a challenge to the scheme by HMRC through the tribunals would make that look like dropped change.

[pipllman]

Also, keep in mind that in there somewhere is some commission to the introducer (in this case property 118)....

The advice isn't best dished out for free on the forum. It does need a careful understanding of the client needs and some thought and some insurance...

[Bland Unsight]

I would have though the Gentry who have paid such fees more or less sorted out their affairs in advance for the long term.

This Gainsborough painting is known informally as The BTLers. It is believed that the subjects were the first of the landed nobility to incorporate a large portfolio of crap semis they'd bought with buy-to-let mortgages. Critics suggest that they appear tight-lipped because the painter was annoyed that that the wouldn't tell him more about the structure used because of Ye Olde Non-Disclosure Agreement.

[Neverwhere]

...However, where things get a bit grey is where the incorporation is done as a way of reducing the tax bill. HMRC might decide that any particular incorporation is simply a construct to avoid the tax that was due when the business / investment was unincorporated. HMRC could then, under GAAR and other legislation, say that the incorporation fails the reasonableness test (i.e. it is more than a reasonable person would think reasonable as a way of minimising the tax liability)...

I don't think that's the case at all. You can choose to incorporate in order to reduce your overall tax bill once incorporated. That's perfectly fine and legitimate.

It's the bit between legitimately operating as an individual and legitimately operating as company when you're transferring assets between the two which is the subject of all of these tax avoidance schemes, and it is those schemes which may well be disallowed under GAAR.

[Neverwhere]

This Gainsborough painting is known informally as The BTLers. It is believed that the subjects were the first of the landed nobility to incorporate a large portfolio of crap semis they'd bought with buy-to-let mortgages. Critics suggest that they appear tight-lipped because the painter was annoyed that that the wouldn't tell him more about the structure used because of Ye Olde Non-Disclosure Agreement.

I think you're getting the gentry confused with the nobility. The gentry are further down the pecking order. Gentry is also an old fashioned term for fairies (as in the ones you get in fairy tales).

[Bland Unsight]

I think you're getting the gentry confused with the nobility. The gentry are further down the pecking order. Gentry is also an old fashioned term for fairies (as in the ones you get in fairy tales).

The Dude loves research. I did some googling before posting. The sitters are described thus by wikipedia:

Robert Andrews, the male sitter, was a member of the landed gentry,and this is very much apparent in Gainsborough's work. Although it is probable the family money came from being a landlord, Robert's father also lent substantial amounts of money, particularly to other gentry, at significant interest rates.

Source

The fairies thing is new to me, (unless that is numbskull anarchist homophobia, hating on the landlords because you are jealous - yeah, it's probably that). Given the source of the original reference to the gentry, coming as it did from one of the leading posters on Poverty11Later, I thought that the gentry might be a dazzling breakdancing move involving a meat cleaver. The extent of my disappointment is difficult to communicate.

[Neverwhere]

The Dude loves research. I did some googling before posting. The sitters are described thus by wikipedia:

Robert Andrews, the male sitter, was a member of the landed gentry,and this is very much apparent in Gainsborough's work. Although it is probable the family money came from being a landlord, Robert's father also lent substantial amounts of money, particularly to other gentry, at significant interest rates.

Source

Brilliant, banks and BTLers all in one!

...The fairies thing is new to me, (unless that is numbskull anarchist homophobia, hating on the landlords because you are jealous - yeah, it's probably that). Given the source of the original reference to the gentry, coming as it did from one of the leading posters on Poverty11Later, I thought that the gentry might be a dazzling breakdancing move involving a meat cleaver. The extent of my disappointment is difficult to communicate.

It's a colloquial usage from the nineteenth century - possibly Irish in origin and later referenced in Lords and Ladies - and definitely refers to fairy tale fairies, so apt enough to make up for any disappointment I think

[Pop321]

Guys. You do realise I am writing all this down and using it as a defence strategy for several of the 118 members if they incorporate. I am acting as their defence lawyer at no charge.

So this Gainsborough - did he work for a bank? Why did he take this photo of these landlords again?

Crickey I hope I get this right I would hate it if I didn't do a great job defending the 118 guys. ?

[Neverwhere]

Guys. You do realise I am writing all this down and using it as a defence strategy for several of the 118 members if they incorporate. I am acting as their defence lawyer at no charge.

So this Gainsborough - did he work for a bank? Why did he take this photo of these landlords again?

Crickey I hope I get this right I would hate it if I didn't do a great job defending the 118 guys.