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Living On The Edge And Not On Anyone's Radar - Yet...

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Thought it worth reproducing a post I made on the newsblog last week, as it underlines the fact that there could be tens, possibly hundreds, of thousands of borrowers who may be just one or two rate rises away from catastrophe - and the decision makers have no idea - they don't appear on anyone's radar - yet...

"I’ve just dealt with the tax return for someone who has 2 let properties. She bought the first in the mid 80’s for around £30k, moved out in the mid 90’s, when she was struggling to pay the mortgage, and let it out. History tells us that this was a lucky strike, because when she was back on her feet, she bought somewhere else and kept the first house. All good so far – don’t we all wish we’d done that?

But then I find out that house #1 has been remortgaged over and over and now has a mortgage of, wait for it, £144k. Part of that went as a deposit on house #2, but that too has since been remortgaged and now has little or no equity.

Meanwhile, egged on by her ‘financial adviser’ she has recently moved out of #2 and bought house #3…

After paying all the mortgage interest, repairs etc., there is no profit from the lettings. Her other income is about half the national average, probably insufficient to live on (although she’s single), and she seems to be supplementing this from MEWing. If anybody had taken a good look at her finances, there is no way on earth that she would have been allowed to buy house #3.

When I asked her why she kept remortgaging, she told me that she has to change mortgages to get another cheap deal, otherwise she wouldn’t be able to afford the SVR(!) - she just finds it convenient to release a bit more equity as she goes…

I told her I was worried about how she would cope with further interest rate rises – she’s confident that (although having never made a profit before), she will be in profit next year…

And to think that she doesn’t appear on any, not any, statistics that are used to tell the state of the property market or the economy. Not yet, at least…"

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Jeff Randall put it very well when he said rising house prices were concealing chaotic personal finances.

Just wait till those house prices drop and the easy supply of money disappears...

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[Mortgages are not included when calculating the CGT gain.]

This is an interesting point - I had not even thought to warn clients about this - one assumes that people would realise it, although many think that they can claim the interest on the MEW loan used for private purposes, so it is certainly conceivable that they may think repayment of the loan would reduce their CGT...

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This is an interesting point - I had not even thought to warn clients about this - one assumes that people would realise it, although many think that they can claim the interest on the MEW loan used for private purposes, so it is certainly conceivable that they may think repayment of the loan would reduce their CGT...

If they don't declare this to the tax man how is anyone going to find out ?

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This is an interesting point - I had not even thought to warn clients about this - one assumes that people would realise it, although many think that they can claim the interest on the MEW loan used for private purposes, so it is certainly conceivable that they may think repayment of the loan would reduce their CGT...

If the purpose is capital account re-financing, the proceeds can be used for anything. The maximum loan would be the value of the BTL when it was introduced into the rental business.

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If they don't declare this to the tax man how is anyone going to find out ?

Land Registry database.

Informants.

Tax Fraud is a criminal offence - and its spectre will always be at your shoulder.

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And don't forget that Gordon is going to be eager for any new opportunity to bring in more tax money. It's not like you can hide a house under your mattress to prevent him from taxing it or enforcing the tax laws when you sell.

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Land Registry database.

Informants.

Tax Fraud is a criminal offence - and its spectre will always be at your shoulder.

Had thoughts along similar lines myself, why should confidential info like house price sales be publicly available?

Answer: Gordon Brown instantly recruits a few million grasses.

Sox

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If the purpose is capital account re-financing, the proceeds can be used for anything. The maximum loan would be the value of the BTL when it was introduced into the rental business.

Point taken, but that was in the mid-nineties - having bought in mid eighties, it was probably not much different. We settled on a higher figure anyway, to include her estimates of various improvement expenditure.

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Point taken, but that was in the mid-nineties - having bought in mid eighties, it was probably not much different. We settled on a higher figure anyway, to include her estimates of various improvement expenditure.

Yes, the old Schedule A (Income from property) regime (for individuals) ended on 5 April 1995, and the new regime (more aligned with the trading basis of Schedule D Case I) commenced on 6 April 1995.

It was this change which permitted the principle of the tax deductibility of loan interest for Capital Account re-financing for a property rental business. A lot of Tax Inspectors are still not aware of this, despite it being available for nearly 12 years! :rolleyes:

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I wonder if she is aware of all the taxes she will owe on the profits when she sells.

Essentially, she has extracted taxfree cashflow by MEW-ing, and as soon as she sells,

she will be required to pay the tax.

I expect she is trapped by now, and cannot sell, because she lacks the money to pay the tax.

I wonder how many tens of thousands of the BTL briggade share her sad predicament?

If she were to go bankrupt would she still owe the tax?

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If she were to go bankrupt would she still owe the tax?

IIRC, HMRC 's debts ceased to have Preferential status after 2003.

So HMRC should be treated just another unsecured creditor.

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IIRC, HMRC 's debts ceased to have Preferential status after 2003.

So HMRC should be treated just another unsecured creditor.

Correct the changes were made by the ENterprise Act 2002.

However even being a pref creditor of a bankrupt estate with no assets is worthless. The vast majority of bankruptcies never result in a payment to creditors.

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  • 333 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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