Landlord Tax Reflief

[no accountant]

I getting more annoyed with the Landlord tax relief. :angry: Tell me if I have this right:

For me to pay a mortage of £600 I have to earn £1000 from my job or investments. Most people in London pay 40% tax, £400 goes to Gordon each month (33% base rate incl NI).

For my landlord to pay the very same mortgage he only has to receive £600 from his income as his mortgage interest payments are tax-deductible. Nothing goes to HMRC. (Assumes the current yield is about 5 or 6%, was seems about right)

This means the landhoard should be prepared to pay 10/6ths times the price on the same asset. So, given the same revenue, he can bid up to £100,000 whereas I can only bid up to £60,000.

This gives the landhoard an inherent tax advantage compared to the private buyer. Nice one Gordon. No wonder no one can afford a flat! Can we lobby for mortgage interest to not be tax-deductible under any circumstances (expect maybe commercial property)

[Time to raise the rents.]

You should be an accountant!

[Nick T]

You should be an accountant!

dont be too smug

[othello]

Still, rental yields are at an all time low.

[non-FTBer]

I agree that it is a reprehensible situation.

WTF should the landscape favour investors over people who just need a home to live in?

Maybe we should start a barrage of emails to our MPs over this, it just might get a bit of attention.

Anybody up for rephrasing the way it works suitable for digestion by an MP.

[Time to raise the rents.]

I don't think that the problem you have is with Landlords. I think the problem is that private finance costs aren't deductible against your private income. Any business has to be able to deduct it's costs from it's income to arrive at it's taxable profit or be unviable.

In many countries it is deductible. America, Sweden, others I'm sure.

But be careful what you wish for. If they made mortgage costs deductible again, the market would adjust by marking up houses and no doubt you would complain about that.

I agree that it is a reprehensible situation.

WTF should the landscape favour investors over people who just need a home to live in?

Maybe we should start a barrage of emails to our MPs over this, it just might get a bit of attention.

Anybody up for rephrasing the way it works suitable for digestion by an MP.

Because investors will ensure places are put to the best use, where OO's are simply living in their home & won't necessarily be driven to get the best out of it.

IMO this is very good for the economy.

[no accountant]

Because investors will ensure places are put to the best use, where OO's are simply living in their home & won't necessarily be driven to get the best out of it.

IMO this is very good for the economy.

But they only put to 'good use' in property because of tax relief. If it were on a level playing field with OO, paying the same tax, they would not be so keen to bid the price. They'd find a good yield in somewhere else.

I agree that giving everyone tax relief wouldn't help to bring house prices down, but it would tilt the balance back toward OO, helping to increase the percentage of people who can own their own (overpriced) home. Aledgedly one of Tony's aims.

In the competition between landhoard and OO, is a level (income tax) playing field too much to ask for?

[Jason]

The only saving grace I can think of is a BTL landlord will pay capital gains tax.

[Given Up]

If landlords could not offset the mortgage interest, surely they would raise the rent. If it was a blanket piece of legislation all landlords would increase at the same time.

Regarding capital gains, the landlord does not have to pay that until he sells the property so the government is giving him a tax free loan.

[Smell the Fear]

I getting more annoyed with the Landlord tax relief. :angry: Tell me if I have this right:

For me to pay a mortage of £600 I have to earn £1000 from my job or investments. Most people in London pay 40% tax, £400 goes to Gordon each month (33% base rate incl NI).

For my landlord to pay the very same mortgage he only has to receive £600 from his income as his mortgage interest payments are tax-deductible. Nothing goes to HMRC. (Assumes the current yield is about 5 or 6%, was seems about right)

This means the landhoard should be prepared to pay 10/6ths times the price on the same asset. So, given the same revenue, he can bid up to £100,000 whereas I can only bid up to £60,000.

This gives the landhoard an inherent tax advantage compared to the private buyer. Nice one Gordon. No wonder no one can afford a flat! Can we lobby for mortgage interest to not be tax-deductible under any circumstances (expect maybe commercial property)

The money the landlord receives in rent is post-tax income for the tenant - the same pool of post-tax income is available for housing (whether buying or renting), so the landlord does not have an advantage. As TTRTR points out, giving relief to OOs would simply drive house prices up further as OOs would have more money available for purchase.

Also, as an OO you effectively rent from yourself (this is known as an imputed rent). You are not charged any income tax on the imputed rent you receive for living in your property, so you are better off than the landlord who has to pay tax on his profits.

Also, as an OO you don't have to pay any capital gains tax, whereas the landlord does.

As an OO the tax situation is firmly in your favour. You are barking up the wrong tree here, and should maybe take an introductory accounting course.

[CrashConnoisseur]

This gives the landhoard an inherent tax advantage compared to the private buyer.

1. There's no such thing as "landlord tax relief". Interest on loans is a normal business expense. It can only be offset against actual rent received.

2. Your comparison omits to mention that 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).

The tax advantage is therefore with the owner occupier.

Edited May 16, 2006 by Jeff Ross

[Smell the Fear]

If landlords could not offset the mortgage interest, surely they would raise the rent. If it was a blanket piece of legislation all landlords would increase at the same time.

Regarding capital gains, the landlord does not have to pay that until he sells the property so the government is giving him a tax free loan.

In TTRTR land they would raise the rent. Back in real world, there is only so much cash available for people to pay the rent. The market would not bear much increase, so those landlords who are making losses will sell property. A large number of sellers drives down prices. Some of the buyers will be owner occupiers for whom property will have become affordable, and some will be new BTL landlords who are buying at lower prices and can thus afford to survive on the rents that the market pays.

Result: houses become more affordable, and BTL landlords who are highly geared are bankrupted, to be replaced by new landlords buying at lower prices, and new OOs who can afford property now.

[delboypass]

If landlords could not offset the mortgage interest, surely they would raise the rent. If it was a blanket piece of legislation all landlords would increase at the same time.

Regarding capital gains, the landlord does not have to pay that until he sells the property so the government is giving him a tax free loan.

AND HOW ON EARTH CAN THEY DO THAT

RENT IS A FRACTION OF WAGES AND A PORTION OF AFFORDABILITY

IF RENT KEEPS DRIVING HIGHER THEN PRETTY SOON THE WHOLE THING WILL TURN UGLY BUT IM SURE GORDON WILL STEP IN TO TAX THEM TO DEATH TO GET SOME INCOME HIMSELF BEFORE IT DOES

[Time to raise the rents.]

But they only put to 'good use' in property because of tax relief. If it were on a level playing field with OO, paying the same tax, they would not be so keen to bid the price. They'd find a good yield in somewhere else.

I agree that giving everyone tax relief wouldn't help to bring house prices down, but it would tilt the balance back toward OO, helping to increase the percentage of people who can own their own (overpriced) home. Aledgedly one of Tony's aims.

In the competition between landhoard and OO, is a level (income tax) playing field too much to ask for?

You're mad to suggest it's not a level playing field. If a landlord makes a profit on their rental, they pay tax. If an individual profits from their job, they pay tax. Simple.

You are also able to be a landlord. If it weren't a level playing field, you would have to pass a test or be descended from a certain family or something like that.

In my personal housing, I also have to pay for that from taxed money. A level playing field.

Get a grip on yourself!

[no accountant]

You're mad to suggest it's not a level playing field. If a landlord makes a profit on their rental, they pay tax. If an individual profits from their job, they pay tax. Simple.

You are also able to be a landlord. If it weren't a level playing field, you would have to pass a test or be descended from a certain family or something like that.

In my personal housing, I also have to pay for that from taxed money. A level playing field.

Get a grip on yourself!

As I tried to explain in the first post, my revenue get taxed before i net off my interest cost. I want to be taxed on my profits after funding costs.

So in order to take advantage of the tax break, you think everyone should live in one house and have 3 BTLs? If every single person does this that means we need 4 times more houses! and 3 out of 4 of them will be empty.

I don't see why that make this country better... I don't object to what you're doing, you're just doing what clever people should do and react quickly to opportunities presented to you. I think the incentives should be changed, and you can cleverly sell up (at your original purchase price) and let me take it off your hands.

[AteMoose]

As I tried to explain in the first post, my revenue get taxed before i net off my interest cost. I want to be taxed on my profits after funding costs.

So in order to take advantage of the tax break, you think everyone should live in one house and have 3 BTLs? If every single person does this that means we need 4 times more houses! and 3 out of 4 of them will be empty.

I don't see why that make this country better... I don't object to what you're doing, you're just doing what clever people should do and react quickly to opportunities presented to you. I think the incentives should be changed, and you can cleverly sell up (at your original purchase price) and let me take it off your hands.

Nahh, you should have a BTL, and rent it off yourself through a letting agency

or

Nahh, you should have a BTL rent it out, and rent another place out....

Edited May 16, 2006 by moosetea

[no accountant]

Nahh, you should have a BTL, and rent it off yourself through a letting agency

Sh!t, that's an ace idea!!! who's gonna spot it?

Just get a flatmate and tenancy agreements in their name only. Give them 20% of the tax saving. I am being dumb... why doesn't anyone do this?

Oh I know, CGT. bugger.

Edited May 16, 2006 by no accountant

[Guest Guy_Montag]

Nahh, you should have a BTL, and rent it off yourself through a letting agency

I've seen a few places for sale recently with "Will not receive planning permission to be converted into residential accomodation. Suitable for conversion into holiday accomodation."

I wondered if I could buy one (@ a relatively low price), convert it to a nice house, then let it to myself to stay in during my holidays. I work offshore c. 1 month a year, so I would be officially working that time & "vacationing" the rest of the time (just going into the office for the social side of things).

[no accountant]

would work in a flat or falling market though

[Time to raise the rents.]

As I tried to explain in the first post, my revenue get taxed before i net off my interest cost. I want to be taxed on my profits after funding costs.

So in order to take advantage of the tax break, you think everyone should live in one house and have 3 BTLs? If every single person does this that means we need 4 times more houses! and 3 out of 4 of them will be empty.

I don't see why that make this country better... I don't object to what you're doing, you're just doing what clever people should do and react quickly to opportunities presented to you. I think the incentives should be changed, and you can cleverly sell up (at your original purchase price) and let me take it off your hands.

Yes, if you want to pay tax deductible interest, you need to make the payment of that interest an integral part of the reason for the income you're receiving.

The interest you pay today isn't an intergral part of your income. If you open a business & borrow to help fund the business, you too will be free to claim that interest before paying tax.

There is logic in this & all it takes is for you to acknowledge it.

Nahh, you should have a BTL, and rent it off yourself through a letting agency

There are plenty of people already doing this. Some of my own tenants for example are renting from me, yet are landlords themselves.

[Smell the Fear]

Sh!t, that's an ace idea!!! who's gonna spot it?

Just get a flatmate and tenancy agreements in their name only. Give them 20% of the tax saving. I am being dumb... why doesn't anyone do this?

Oh I know, CGT. bugger.

I don't really think you get it.

Scenario A: you are an owner occupier. You earn £1000 per month after tax. Your mortgage is £500. You have £500 left after paying your mortgage.

Scenario B: you buy a flat and rent it to yourself. You pay £500 to yourself as rent, and pay the £500 mortgage. You still have £500 left after paying your mortgage, but you have paperwork etc. to deal with.

Scenario C: you buy a flat and rent it to yourself. You pay £800 to yourself as rent, and pay the £500 mortgage. You have £300 profit and pay tax on it, at say 20%. So you have £240 left, plus £200 of your pay that you didn't spend on rent. You have a total of £440. You have lost £60 through your ingeniuous scheme.

[Cinnamon]

IF RENT KEEPS DRIVING HIGHER THEN PRETTY SOON THE WHOLE THING WILL TURN UGLY BUT IM SURE GORDON WILL STEP IN TO TAX THEM TO DEATH TO GET SOME INCOME HIMSELF BEFORE IT DOES

But first, he will tax the capslock keys on all the keyboards sold from 2007 onwards.

[no accountant]

I don't really think you get it.

Scenario A: you are an owner occupier. You earn £1000 per month after tax. Your mortgage is £500. You have £500 left after paying your mortgage.

Scenario B: you buy a flat and rent it to yourself. You pay £500 to yourself as rent, and pay the £500 mortgage. You still have £500 left after paying your mortgage, but you have paperwork etc. to deal with.

see what you mean, doesn't work at all. That's a rubbish idea. But it wasn't mine, it was moosetea!

see what you mean, doesn't work at all. That's a rubbish idea. But it wasn't mine, it was moosetea!

I would however work ok if you self-employed, wouldn't it? Then you would pay yourself a salary out of the net profit, after having deducted the interest payments.

Anyhow, my original point was that this is silly unfair rule that give LLs the upper hand in all bidding wars.

[frugalista]

I getting more annoyed with the Landlord tax relief. :angry: Tell me if I have this right:

For me to pay a mortage of £600 I have to earn £1000 from my job or investments. Most people in London pay 40% tax, £400 goes to Gordon each month (33% base rate incl NI).

For my landlord to pay the very same mortgage he only has to receive £600 from his income as his mortgage interest payments are tax-deductible. Nothing goes to HMRC. (Assumes the current yield is about 5 or 6%, was seems about right)

This means the landhoard should be prepared to pay 10/6ths times the price on the same asset. So, given the same revenue, he can bid up to £100,000 whereas I can only bid up to £60,000.

This gives the landhoard an inherent tax advantage compared to the private buyer. Nice one Gordon. No wonder no one can afford a flat! Can we lobby for mortgage interest to not be tax-deductible under any circumstances (expect maybe commercial property)

I don't think the LL has a tax advantage, I think the OO has the tax advantage, even without invoking CGT.

LL has to pay tax on income from the property.

OO does not. OO gets an income in kind from the property (i.e. the right to live there) which is tax free.

LL can only offset mortgage interest against income from their LL business, not their general income.

In some countries (e.g. Australia) interest can be offset against general income. This is called negative gearing. But, negative gearing for LLs does not exist in the UK.

frugalista

[frugalista]

To put it another way, in the UK, LL cannot get income to cover the mortgage from anywhere if the interest is to be tax deducted. LL must get this income from rent. So, LL must find tenant willing to pay £600 rent. Assuming 40% tax, said tenant must earn £1000 in order to pay this rent.

frugalista