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http://news.bbc.co.uk/1/hi/uk_politics/4564458.stm

This seems inevitable since property is such a large part of national wealth and BTL purchasers enjoy more favourable tax arrangements than home owners.

Wrong way round. Home owners have much more favourable tax treatment than BTLers. They don't pay capital gains tax, and they don't pay income tax on the benefit they receive from their investment.

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Wrong way round. Home owners have much more favourable tax treatment than BTLers. They don't pay capital gains tax, and they don't pay income tax on the benefit they receive from their investment.

Hmmm!

The BTL owner can offset tax liabilities against mortgage debt. That is effectively like giving miras to BTLs. What happens to capital gains liabilities over time?

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Hmmm!

The BTL owner can offset tax liabilities against mortgage debt. That is effectively like giving miras to BTLs. What happens to capital gains liabilities over time?

The home owner pays no income tax at all on the benefits of the ownership, so there's no need for any relief. A BTLer paying £5,000 per year in mortgage repayments and getting £7,000 per year in rent only pays tax on the £2,000 difference. A home owner paying £5,000 per year in mortgage repayments and receiving a benefit worth £7,000 per year (the right to live in the property) pays no tax at all. Advantage to the home owner.

When comparing the tax treatment of BTL and ownership, never forget to account for the financial benefit of ownership, even though it's not cash received. MIRAS was introduced at a time when home owners did have to pay income tax as if they were paying themselves a market rent -- it should never have been retained when the tax was abolished.

Capital gains get some taper relief if you keep the property for long enough. I think that if you keep it for ten years or more, you only have to pay tax on 60% of the gain. The home owner, of course, is still paying tax on 0% of the gain.

Edited by zorn

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The home owner pays no income tax at all on the benefits of the ownership, so there's no need for any relief. A BTLer paying £5,000 per year in mortgage repayments and getting £7,000 per year in rent only pays tax on the £2,000 difference. A home owner paying £5,000 per year in mortgage repayments and receiving a benefit worth £7,000 per year (the right to live in the property) pays no tax at all. Advantage to the home owner.

When comparing the tax treatment of BTL and ownership, never forget to account for the financial benefit of ownership, even though it's not cash received. MIRAS was introduced at a time when home owners did have to pay income tax as if they were paying themselves a market rent -- it should never have been retained when the tax was abolished.

Capital gains get some taper relief if you keep the property for long enough. I think that if you keep it for ten years or more, you only have to pay tax on 60% of the gain. The home owner, of course, is still paying tax on 0% of the gain.

Buyer A.

A first time buyer purchases a house with a 100% mortgage. He pays off the capital over 10 years and sells the house for £100,000.

Buyer B.

A BTL buys a house for £100,000 with a 100% mortgage. He uses the rental income to pay off the capital and after 10 years he sells the house for £100,000.

How much does the tax man contribute towards the repayment of debt A and debt B?

Plenty of people are predicting low house inflation for many years.

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Buyer A.

A first time buyer purchases a house with a 100% mortgage. He pays off the capital over 10 years and sells the house for £100,000.

Buyer B.

A BTL buys a house for £100,000 with a 100% mortgage. He uses the rental income to pay off the capital and after 10 years he sells the house for £100,000.

How much does the tax man contribute towards the repayment of debt A and debt B?

Plenty of people are predicting low house inflation for many years.

Depends on the rental and the mortgage repayments. Let's say that the mortgage repayments are £6,000 per year and the rent is £8,000 per year, and that A and B are both higher rate taxpayers.

For buyer A, the taxman contributes £3,200 per year, or £32,000 over ten years, by giving 100% tax relief on the benefits of ownership of £8,000 per year.

For buyer B, the taxman contributes £2,400 per year, or £24,000 over ten years, by allowing tax relief on the mortgage repayments of £6,000 per year.

So buyer A, the owner occupier, has the more favourable tax treatment.

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Buyer A.

A first time buyer purchases a house with a 100% mortgage. He pays off the capital over 10 years and sells the house for £100,000.

Buyer B.

A BTL buys a house for £100,000 with a 100% mortgage. He uses the rental income to pay off the capital and after 10 years he sells the house for £100,000.

How much does the tax man contribute towards the repayment of debt A and debt B?

Plenty of people are predicting low house inflation for many years.

Is this a trick question?

As far as I can see the tax man contributes nothing to the repayment of either debt

Anyway to pay off a 100% loan over 10 years would need a rental yield of about 17% by my workings - the reality nowadays is closer to 5% which is maybe a little lower than the rate of the interest the bank would be charging. At 5% interest rates and 5% income Buyer B is loosing money or at best standing still unless property prices go up.

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Wrong way round. Home owners have much more favourable tax treatment than BTLers. They don't pay capital gains tax, and they don't pay income tax on the benefit they receive from their investment.

Hi Zorn,

I think your wording says it all. Someone who owns and lives in their own home is not an investor in the same sence as a BTLer who has bought a property for profit.

If capital gains tax was slapped on 'every' house sale nobody would be able to move. I'm not just talking about moving up the ladder, what about moving to a new area? If you have to pay CG tax to do that then you would probably be moving into a smaller home (depending on the HP's in the new area).

BTLers are paying tax on their income, just like everyone else does when they earn money whether it be from your job or the interest gained in a bank account. There is nothing unfair about it and it should definately not apply to owner occupiers. Just because the owner occupier and the BTLer have both bought property does not make it the same kind of investment.

All,

Anyway, I think the tax problems lie more in council tax than capital gains tax. If a BTL property is empty or a home is a holiday home only a percentage of council tax is liable (90% I believe). This in my opinion is a problem, it is effectively an unfair tax break to non-owner occupiers and it can be harmful to local economies especially where there is a large percentage of investor properties (think Devon and Cornwall).

The sooner this tax dodge is removed the better.

LG

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I think your wording says it all. Someone who owns and lives in their own home is not an investor in the same sence as a BTLer who has bought a property for profit.

Yes they are. It's the same. There's no difference. You have some money and you use it in the way that you think will bring you the biggest total net benefit -- that may be buying a property for you to live in yourself, or it may be buying a property to rent out. Either way, it's an investment -- that's what investment is. The government sees some social benefits from owner-occupying, and gives it more favourable tax treatment, but that is the only difference.

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Depends on the rental and the mortgage repayments. Let's say that the mortgage repayments are £6,000 per year and the rent is £8,000 per year, and that A and B are both higher rate taxpayers.

For buyer A, the taxman contributes £3,200 per year, or £32,000 over ten years, by giving 100% tax relief on the benefits of ownership of £8,000 per year.

For buyer B, the taxman contributes £2,400 per year, or £24,000 over ten years, by allowing tax relief on the mortgage repayments of £6,000 per year.

So buyer A, the owner occupier, has the more favourable tax treatment.

You are talking nonsense about benefits of ownership since both owner occupier and BTL have equal status in that respect? If you are talking about benefit of amenities, that is covered by council tax.

Your numbers illustrate that the BTL gets £24,000 gratis from the tax man.

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The sooner this tax dodge is removed the better.

10% discount off poll tax is a pathetic drop in the ocean.

many, many one off btlrs dont pay tax on CG or on the rental incomes at all. neither do hardly any property flippers. and when was the last time a 'developer' on those bbc renovation programs factored in tax to the end summary.? not any ive seen. laminate floors and costs of adding a new on suite bathroom yes. but alas, no mention of tax liability.

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Yes they are. It's the same. There's no difference. You have some money and you use it in the way that you think will bring you the biggest total net benefit -- that may be buying a property for you to live in yourself, or it may be buying a property to rent out. Either way, it's an investment -- that's what investment is. The government sees some social benefits from owner-occupying, and gives it more favourable tax treatment, but that is the only difference.

I'm not quite sure what there is to disagree with here (I know that sounds very arrogant, it's not ment to)

The BTLer is owning a property merely to make money, for some LL's this is their job, there is no other reason for them to own the property. I have a job which I do merely to make money. Both myself and the BTLer are taxed on our income.

The owner occupier, has bought a home so they have somewhere to live. Some people see it as a cash cow and some choose not to own a home and rent granted, but it's only 'real' use is as a home.

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You are talking nonsense about benefits of ownership since both owner occupier and BTL have equal status in that respect? If you are talking about benefit of amenities, that is covered by council tax.

Your numbers illustrate that the BTL gets £24,000 gratis from the tax man.

Consider it this way round.

In scenario A, two people each own a £100,000 home for ten years with a mortgage on which they're repaying £6,000 per year, and they live in it. They pay no income tax on this.

In scenario B, two people each own the same homes, but they rent them to each other for £8,000 per year, and each live in the property owned by the other one. Now they're each paying £800 per year in income tax. So the owner occupiers have the more favourable tax treatment.

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10% discount off poll tax is a pathetic drop in the ocean.

many, many one off btlrs dont pay tax on CG or on the rental incomes at all. neither do hardly any property flippers. and when was the last time a 'developer' on those bbc renovation programs factored in tax to the end summary.? not any ive seen. laminate floors and costs of adding a new on suite bathroom yes. but alas, no mention of tax liability.

I know it doesn't sound a lot, but imagine the effect it has on council tax bills in a town where there is a high percentage of empty BTL or holiday homes? If a council is loosing 10% of its revenue on empty properties, how will they make up the difference? I think they will raise the council tax for those who live in the area full time.

Consider it this way round.

In scenario A, two people each own a £100,000 home for ten years with a mortgage on which they're repaying £6,000 per year, and they live in it. They pay no income tax on this.

In scenario B, two people each own the same homes, but they rent them to each other for £8,000 per year, and each live in the property owned by the other one. Now they're each paying £800 per year in income tax. So the owner occupiers have the more favourable tax treatment.

Why would anyone do scenario B unless there was a difference in the size of the properties?

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I know it doesn't sound a lot, but imagine the effect it has on council tax bills in a town where there is a high percentage of empty BTL or holiday homes? If a council is loosing 10% of its revenue on empty properties, how will they make up the difference? I think they will raise the council tax for those who live in the area full time.

Why would anyone do scenario B unless there was a difference in the size of the properties?

Is council tax charged anyway on an empty property whether or not its a buy to let - i thought there was a 50% reduction in either event for the period they are empty ie there is no discrimination either way. Pretty sure I.m right on this.

I thought the discrimination was on second homes only - ie holiday homes etc where there is a 50% rate whether or not the property is occupied.

The holiday home reduction was introduced on the basis that the occupier of a holiday home does not draw as much on the expensive local services where he has his holiday home eg education, social services etc. Its indirect effect is to make it cheaper to own a holiday home than it otherwise would be, which increases house prices in rural/coastal areas which are most popular for holiday homes.

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They wouldn't. Zorn put it forward to illustrate the tax treatment

This poses a different question. Should you pay CG tax if you own only one property but don't live in it?

It is quiet different to someone owning several properties. This could be done if you move abroad or to another part of the UK for a couple of years, where buying and selling (twice) would incur various fees.

Is council tax charged anyway on an empty property whether or not its a buy to let - i thought there was a 50% reduction in either event for the period they are empty ie there is no discrimination either way. Pretty sure I.m right on this.

I thought the discrimination was on second homes only - ie holiday homes etc where there is a 50% rate whether or not the property is occupied.

The holiday home reduction was introduced on the basis that the occupier of a holiday home does not draw as much on the expensive local services where he has his holiday home eg education, social services etc. Its indirect effect is to make it cheaper to own a holiday home than it otherwise would be, which increases house prices in rural/coastal areas which are most popular for holiday homes.

I found the 10% reduction on my local councils website, see the quote below;

Discounts

Exemptions and reliefs

The Council Tax bill assumes there are at least two adults living in a property. It will show a 25% discount if there is only one countable adult or a 10% discount if the property is no-one's main home, such as empty properties and second homes. Please check the bill has the correct discount and query if you think it is wrong. You must tell the council within 21 days of becoming aware of any change in circumstances which affect your discount.

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Consider it this way round.

In scenario A, two people each own a £100,000 home for ten years with a mortgage on which they're repaying £6,000 per year, and they live in it. They pay no income tax on this.

In scenario B, two people each own the same homes, but they rent them to each other for £8,000 per year, and each live in the property owned by the other one. Now they're each paying £800 per year in income tax. So the owner occupiers have the more favourable tax treatment.

If you borrowed £100,000 to buy shares, you could not offset tax on the dividends against interest charges on the debt so why is this generous tax break given to BTLs?

BTL landlords often tell us how their property portfolios are wholly self funding. A component of that self funding formula relies on tax relief. If a BTL can buy a property without contributing towards the purchase price, then the tax system is giving him an advantage over the prospective owner occupier who has to repay his mortgage wholly out of taxed income.

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If you borrowed £100,000 to buy shares, you could not offset tax on the dividends against interest charges on the debt so why is this generous tax break given to BTLs?

Now you've changed from comparing BTLs with Owner Occupiers to comparing BTLs with geared stock market investors.

Surely zorn has clearly shown that it is the owner occupiers who have the tax advantages. You have been listening to brainclamp too much!

frugalista

If you borrowed £100,000 to buy shares, you could not offset tax on the dividends against interest charges on the debt so why is this generous tax break given to BTLs?

Even though it's tangential, I couldn't help responding anyway.

I think you're phrasing it wrongly. BTLs offset interest payments (an expense) against rental income (a revenue), tax is then charged on the difference (the profit).

I'm no accountant, but I am guessing if a business borrows money in order to conduct its affairs, whether buying shares or otherwise, it seems that the charges on that loan would always count as an expense.

So I think a geared SM investor (if they had set up a company etc) *could* offset their interest payments on the loan requred to buy the shares (an expense) against the share dividends (a revenue); tax would then be charged as always on the difference (the profit).

frugalista

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Now you've changed from comparing BTLs with Owner Occupiers to comparing BTLs with geared stock market investors.

Agreed! I chucked that in because I think far to much money is wasted on property investment in the UK. Technology is very poorly supported by the invesment community.

Surely zorn has clearly shown that it is the owner occupiers who have the tax advantages.
'Clearly shown' in your eyes only. I am yet to be won over. If the tax system allows A BTL to enjoy tax relief on an asset for which he pays nothing, this strikes me as giving him a Tax advantage over the owner occupier.

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'Clearly shown' in your eyes only. I am yet to be won over. If the tax system allows A BTL to enjoy tax relief on an asset for which he pays nothing, this strikes me as giving him a Tax advantage over the owner occupier.

Okay, think about it this way. As I mentioned above, BTLs offset interest payments (an expense) against rental income (a revenue), tax is then charged on the difference (the profit).

Suppose you are an owner occupier, and you somehow put a money value of living in your house at £1000 a month. This is "revenue" from your asset. You also have an "expense" of living there, i.e. mortgage interest (the non-interest part of the repayment is really savings rather than being an expense). However, unlike in the case of the BTL, the government does not get you to declare the difference between the revenue and the expense as profit to be taxed. Plus of course, any capital gain when you sell is free of tax.

So really it is the OO who has the better tax treatment both in income and capital gain terms.

frugalista

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If capital gains tax was slapped on 'every' house sale nobody would be able to move. [laughing goat]

Full rollover relief could be given if purchasing another house.

Your numbers illustrate that the BTL gets £24,000 gratis from the tax man. [dog]

An owner occupier pays no tax on their imputed rent (the rent they effectively pay themselves). This used to be taxed under Schedule A (abolished in 1963).

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Zorn, Jeff Ross, Frugalista, laughing goat, Casual Observer etc

You have made a good case. I am still suspicious but I shall say no more for now.

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  • 339 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%



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