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Budget Summer 2015 - What does it mean for property investors?

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Key points

 

Buy to Let Mortgage tax relief to be restricted to the basic rate (20%).

Rent a room tax relief increases to £7,500

Social housing rents to be reduced.

Corporation tax to be lowered to 18% by 2020.

 

As the dust settles, what are your thoughts/reactions?

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Very interesting. This could hit "full time" BTL investors hard - especially those with very high leverage who are working with tight profit margins...

 

Big thumbs up for the reduction in corp. tax. - i also assume that it will become more viable to invest using a ltd company in order to still claim full tax relief on interest payments and also be taxed at 18%.... This in turn could mean that BTL lenders will be forced to cater more to the LTD company market (cheaper rates, more competition) as BTL landlords move their portfolios to LTD structure.

 

Can someone post an example of how this works in reality assuming you are a higher rate tax payer?

 

So if you are basic rate taxpayer, you can still deduct 100% of mortgage interest on a BTL.

 

If you're a 40% taxpayer, how does this work in real terms? Do you not get any relief on interest payments or is it a sliding scale?

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The loss of the 10% Wear and Tear allowance for furnished properties will also be a huge blow to many.  That one will, I assume, affect deductions allowed for both individuals and Limited companies?

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Scott I think your absolutely right.

Next question will be how long will it take the government then to add in an additional tax for by to let in company names ?

How does this in real terms affect the buy to let investor that has the properties in there own name ? Will they up the rents ? Will they get that rent ?

It's a massive worm whole and a lot of scare tactics will be used im sure in the media to scare tennats.

Engin.

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Well for me; am in process of buying my 1st btl and seller was rushing to do an agreement yestday but I had to delay it. Now wondering should I re-negotiate the offer price or not  :wacko: . I am about to pay around 5k more than the valued price!

The tax issue wont be hitting me straight away, but I am forecasting low capital growth in coming few years now.

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Presumably, to move property from personal ownership into a LTD company would trigger CGT being paid which may not be economic?

Lunatr - I am also in similar situation to you. I am thinking today's budget will hit prices soon , particularly in areas where there are many high rate tax BTL investors, or in areas of high numbers of LHA. I for one am putting my buying plans on hold for 3 - 6 months to see if a buying opportunity presents itself! Would consider waiting out the whole four years but by that time int rates could be a lot higher.

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Hi Lunatfr,

This is my point of view...I think you've answered the question yourself really.

Why would you pay more than the valued price ? It's a BTL investment and not your main residence, personally I could be dropping my offer by £15,000 and be 10k under the valued price.

It's a long road in property investment and the mistake your about to make is one I done with my third purchase! Thankfully property has moved slightly now but I would never overpay again.

Engin

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I haven't yet read the full details of this but it sounds as though whichever way you look at it we're going to be paying more tax!  I always have a balanced view with these things and for every problem there is a solution; we just need to find it...together :)

 

What winds me up; yes we're all trying to make some money from our investments but we're putting roofs over peoples heads that can't necessarily afford to buy themselves.  Surely that's a good thing and should be encouraged, not discouraged by Mr Osbourne!

 

I look forward to hearing how others are going to tackle this over the coming days!

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I'm thoroughly confused!!

 

My understanding is that buy to let mortgage has been 100% tax deductible.

 

I.e. if my mortgage interest is £400 and my rent is £500 then my net income (in this simplified example) is £100 so then I pay tax on the £100

 

Yet the articles online today following the budget are talking about BTL mortgage interest relief being reduced from 45% or 40% to 20%

 

E.g. In a £2bn tax bombshell, from April 2017 landlords will no longer be able to claim tax reliefs worth 40% or 45% of the interest payments on their buy-to-let mortgages. Instead, the maximum tax relief will be set at 20%, although the change will be introduced over a four-year period.

 

This taken from the Guardian website.

 

​Can anyone explain this in simple terms?

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From what I been reading and if I've understood correctly....you currently can claim 45p in every £1 spent on mortgage interest payments as relief but under the new law you will only be able to claim 20p in the £1 of mortgage interest...losing us 25p per £1 spent on interest.

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From what I been reading and if I've understood correctly....you currently can claim 45p in every £1 spent on mortgage interest payments as relief but under the new law you will only be able to claim 20p in the £1 of mortgage interest...losing us 25p per £1 spent on interest.

It's this bit...you currently can claim 45p in every £1 spent on mortgage interest payments as relief....that has me confused.  My understanding is that all BTL mortgage interest is offset against the income.

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Took off tax cafe website:

Buy-to-let Mortgage Interest Tax Relief

It’s better to pay off the mortgage on your home first because that interest is not tax deductible. Paying off a buy-to-let mortgage isn’t quite so attractive because the interest qualifies for tax relief.

However, reducing your buy to let mortgages can be the best strategy if the interest rates are very high or having a lower loan to value ratio secures you a better deal when you refinance.

The fact interest is tax deductible may not matter much if you’re making rental losses anyway.

Is my Interest Tax Deductible?

Property investors are often unsure whether their interest is deductible. This depends on how the money is used. Use it to buy investment property and the interest is tax deductible. Use it for personal reasons and the interest is not deductible.

There is an exception to this rule: you can generally remortgage an investment property up to its original purchase price and the interest will be tax deductible, whatever you use the money for. For example, let’s say you bought a buy-to-let for £100,000 and the current mortgage is £60,000. You can borrow up to another £40,000 (if the bank will let you!) and all the interest will be tax deductible, no matter how you use it.

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So if i'm now understanding correctly this is an issue at the point I re-mortgage in the future to release growth in value from the property with a view to using that growth for another property purchase.

 

So it won't affect a property with the first BTL mortgage on it, i.e. where mortgage is less than purchase price.

 

It will just affect it where I re-mortgage for more than the original purchase price, the tax relief is only available at 20% of the interest on anything above the original purchase price.

 

http://www.taxexpert.co.uk/services/taxation-services/property-tax/what-types-of-interest-can-be-offset-against-my-property-income/

 

That right?

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I had the same question as Noel.  The media seemed to confuse me, for as far as I was aware interest on mortgages was deducted before you worked out your tax.  I think in the future, you will pay the tax first and then pay your mortgage interest.  

I think the best thing for us to do is to wait for Rob & Rob to explain the details to us in a podcast.  I think we are in danger of this tread causing misinterpretation.


Matt-Newman.jpg

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I looked to see if I could delete previous post as I agree entirely hopefully Rob & Rob or others with similar understanding can wade in and clarify for all.

 

Definitely in danger of the media causing mass confusion...for a change!

 

http://www.moneysavingexpert.com/news/mortgages/2015/07/summer-budget-2015-buy-to-let-landlords-hit-by-reduced-tax-breaks

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Hi Lunatfr,

This is my point of view...I think you've answered the question yourself really.

Why would you pay more than the valued price ? It's a BTL investment and not your main residence, personally I could be dropping my offer by £15,000 and be 10k under the valued price.

It's a long road in property investment and the mistake your about to make is one I done with my third purchase! Thankfully property has moved slightly now but I would never overpay again.

Engin

Hi Engin,

The final price of the property is same as what buyer bought for before 4 years and he bought it for 30k less of the original price after 2008 crash. When it was undervalued by surveryor, l was told by few BTL veterans that surveyors do play safe and I might have to decide on actual market value. But you have got me thinking again now :).

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I wouldn't disagree with the seasoned investors but it is down to you ultimately and what your willing to pay and if your happy to pay it. He isn't making a lose in any form as he would have had to put a deposit down etc.

Have you went back and tested the water at all with trying to get a further reduction ?

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We are very close to agreement/completion and I was feeling slight guilty on trying to ask reduction at last moment. But as you said it is long term thing and better buy at lowest possible price now rather then incurring slow growth later. So will ask for reduction soon! especially with a solid reason ( loosing tax exemption ).

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no, but the sellers(estate agent/solicitor) were trying to push for exchange pre-budget. Luckily for me it didnt happen and the possibility is it could happen next week now.

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