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Tax Breaks For Landlords

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I'm trying to work out how the buy-to-let market is in any way viable for "investors" at the moment. To do this I'd like to work out the numbers on a typical one bedroom flat. Can anyone explain how tax breaks work for landlords? Is it as simple as getting the income tax back on the mortgage payments and maintenance costs?

My position - A first time buyer who can't believe that he keeps seeing one bedroom flats sold and then back on the market for rent a few weeks later.

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Guest wrongmove
Surely someone can answer this? Of all the housing market pundits here, surely someone has an idea of one of the most fundamental factors in keeping btl going?

I'm no expert on this (to put it mildly :P)), but I like your username, so I will have a pop :P

As I understand it, BTL is taxed as a business, so a BTLer only pays tax on their profit, not on their turnover. The interest portion of any debt (but not any capital repayment portion) is classed as a business expense, and is there fore deductable against any losses.

What this means is that if a BTL "earns" say £500 pcm from his rent, but also pays £500 pcm in interest, his profit, and hence his tax bill, is zero.

If a BTL "earns" £600 pcm, and pays £500, they will only be taxed on the £100 pcm profit, etc.

However, A BTL must pay capital gains tax on any profit when they sell the property (an owner occupier does not).

Can anyone confirm or correct this?

Edited by wrongmove

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Or to put it another way if a buy to let landlord spends money on maintaining or repairing his property or fitting it out with furniture etc for his tenant he can offset the costs against his annual taxbill.

An ordinary homeowner by contrast cannot claim tax relief i.e. they have to pay for these expenses out of their taxed income. Although homeowners don't of course pay capital gains tax when they sell if it is their main residence so it isn't all bad!.

Technically BTL is just another business - but it is a business which has negative social consequences so should be taxed differently.

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Guest wrongmove
Technically BTL is just another business - but it is a business which has negative social consequences so should be taxed differently.

This is a very interesting one. Many argue that you cannot tax BTL differently, but I don't see why not.

However, the UK now depends on the private rental sector because we don't do council housing any more, so the consequences of changing things would have to be thought through carefully. We may just end up with higher rents.

I did see one excellent (IMHO) idea in an Australian article. It went something like this:

A BTLer is in the "business" of providing accomodation, so should be taxed as a business. However, many speculators just sit on property for capital gains - they don't even put a tenant in. This of course reduces supply and puts upward pressure on both rents and prices. To cut a long story short, these people are not in "business" at all, and should be taxed to hell and back.

This is particularly relevent to Australia as they have negative gearing - you can deduct losses on your BTL from your income tax, not just your business tax - but I still think that something along those lines may help here too.

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I'm no expert on this (to put it mildly :P)), but I like your username, so I will have a pop :P

As I understand it, BTL is taxed as a business, so a BTLer only pays tax on their profit, not on their turnover. The interest portion of any debt (but not any capital repayment portion) is classed as a business expense, and is there fore deductable against any losses.

What this means is that if a BTL "earns" say £500 pcm from his rent, but also pays £500 pcm in interest, his profit, and hence his tax bill, is zero.

If a BTL "earns" £600 pcm, and pays £500, they will only be taxed on the £100 pcm profit, etc.

However, A BTL must pay capital gains tax on any profit when they sell the property (an owner occupier does not).

Can anyone confirm or correct this?

....yes that is very much it.....in other words his rental income can be set off against the interest element of his mortgage and other expenses and thus he does not pay any tax on his income unless it is more than these expenses when he will pay tax on the surplus income. If he did not have a BTL mortgage and owned the house outright he would be taxed on the rental income after offsetting some expenses. This really highlights the advantage the BTL borrower has over the FTB when competing in the market..... :o:o

He can minimise capital gains buy holding on to the property for 7 or 8 years and include his annual CG allowance. :lol::lol::lol:

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Guest Yeahbutnocrash
This is a very interesting one. Many argue that you cannot tax BTL differently, but I don't see why not.

However, the UK now depends on the private rental sector because we don't do council housing any more, so the consequences of changing things would have to be thought through carefully. We may just end up with higher rents.

I did see one excellent (IMHO) idea in an Australian article. It went something like this:

A BTLer is in the "business" of providing accomodation, so should be taxed as a business. However, many speculators just sit on property for capital gains - they don't even put a tenant in. This of course reduces supply and puts upward pressure on both rents and prices. To cut a long story short, these people are not in "business" at all, and should be taxed to hell and back.

This is particularly relevent to Australia as they have negative gearing - you can deduct losses on your BTL from your income tax, not just your business tax - but I still think that something along those lines may help here too.

Remember that a btler still has the same situation tax-wise on his own residence as anyone else. The btl's he buys are risks he's taking on in addition to that. If the tax breaks were so advantageous even more people would be taking advantage of it

I agree with what you are saying about taxing people who invest in property but intentionally don't let it

Also the govt should have ways of making sure all btlers are declaring thier tax and have btl mortgages

And I think there could be a case for making it so btlers have to use a letting agent who could then help to ensure properties are managed properly and LL's treat their tenants properly

But I'm not so sure about taxing them additionally in other ways

Remember at the moment we are observing btl in a rising market but to have a stable lettings sector it needs something that would still work if property prices were not increasing or going down

For goodness sake you wouldn't want a mass sell-off of btl caused by them being overtaxed in a down-turn contributing to a crash-type scenario would you? :D

Also who has really made loads of dosh out of the HPI? It's not necessarily the btlers when it costs as much to buy a converted flat now as it would have to buy the whole building a few years ago...

Seems to me it's the developers & lenders who are making the real dosh whilst btlers who don't declare the tax are the ones with an unfair advantage (which may be the difference between them being able to do btl or not)

Edited by Yeahbutnocrash

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