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July Budget 2015 at a glance

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8th Jul 2015
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Should Be Working ... not playing with the car
By should_be_working
09th Jul 2015 11:00

Simples

George Osborne is visiting a local firm in his constituency. The MD's secretary is making the tea. She asks him how he'd like it.

"Oh, as it comes is fine, I like to keep things simple".

The secretary replies "Errm, OK then. Milk?"

"Yes, but only if the temperature is less than 38%, if it's more than that then you need to reduce the amount of milk by 10% for every 4.5 degrees tapering to a minimum of 1 ml."

"Sugar?"

"Two please, if the cup size is between 100 ml and 125 ml, One if it's more than 140 ml."

George pauses, "Oh, hold on, what day is it?"

"Tuesday"

"In that case, reduce all the above amounts by 12.6%, unless it's after midday in which case you can increase everything by 3.4% as a reward for hardworking chancellors who are doing the right thing."

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By mickeyparish
09th Jul 2015 11:08

interest restriction on buy to let

 

The Conservatives are fond of calling the Labour Party economically illiterate.  In this case it's the chancellor who is economically illiterate.

 

Owning properties for rent is either a business or it isn't.  Mortgage interest is a genuine business cost ( not a "relief" as the chancellor disingenuously puts it ) .  Restricting the ability to deduct a genuine business cost from profits could have the unintended consequence of property owners actually paying HMRC more in tax than they earn in profit, if they are higher rate taxpayers and their profit on the rental activity is less than 20%. 

I am a higher rate taxpayer and have a rental property.  Fortunately I don't have a mortgage.  If I did I would certainly not be making 20% clear, so would simply get out of rental.

 

As usual, the chancellor is favouring the well -off.  Thousands of affected middle income earners will now have to put their rental properties ( which they bought in desperation of trying to set up something for their retirements ) on the market.  Well-off people will be able to buy them cheap.

 

And construction firms will stop building badly needed housing.

 

What a [***] up !

 

If George wants to have a "level playing field" between home owners and rental properties, he is being an utter hypocrite.  I don't see anywhere a promise of PPR CGT relief for rental owners !

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Replying to frankfx:
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By WALLENDER
09th Jul 2015 12:02

Tax relief on mortgage interest

 

What is your problem? 

Why should the taxpayer subsidise your buy to let? You want to own a property then pay for it yourself, not by getting a handout from the tax payer. Getting relief under the 10% wear and tear allowance is also a joke. The new rule on replacement cost is better but still a subsidy. 

Regards

Wallender 

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Replying to NH:
Should Be Working ... not playing with the car
By should_be_working
09th Jul 2015 12:32

Tax Relief != Subsidy

WALLENDER wrote:

 

What is your problem? 

Why should the taxpayer subsidise your buy to let? You want to own a property then pay for it yourself, not by getting a handout from the tax payer. Getting relief under the 10% wear and tear allowance is also a joke. The new rule on replacement cost is better but still a subsidy. 

Regards

Wallender 

A tax relief is not a subsidy - that's Guardian-reader's logic (which sadly, Osborne seems to be using these days).

On that basis, the PPR exemption is a subsidy.

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Replying to frankfx:
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By cricket
10th Jul 2015 09:25

Your comments

Dear Mickey Parish,

If I had the opportunity, I would tax the parasitic activity of buy to let out of existence on anyone who had more than one property.

I know a butcher who has over 70 properties and runs it as a sideline. He contributes nothing of real value to our economy and

distorts the market for everyone else. Roll on the property crash in general! The problem with our once great country is that Cameron and Osborne

were both born with huge silver salvers in their mouths and neither have ever done proper jobs. The concept of easy money and these two go

hand in hand.  

I also object to the virtual removal of IHT from most people. My parents spent approx. 60 years contributing to building up our once strong country

fighting the war for the freedoms the younger people now have/ paying their due taxes all their lives/not one penny of benefits. At the end of their lives

they were then caught for a ridiculous amount of IHT on their modest Estate after 60 years of hard graft. Personally I would not give one £ in IHT saving to

the current generation who have only made their money from a farcical property boom. Cameron and Osborne`s family trusts are immune of course since

they are in Panama.

I am looking forward to the property crash and mortgage interest rates at 16% again. I am sick and tired of listening to young people how much their

property is worth or how much of their parents estate they have spent. Most of them are so thick, it has not dawned on them that a house of cards is all

they are building.

CRICKET

 

  

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By Les Smith
09th Jul 2015 13:29

Interest Costs

Now that the Chancellor has determined interest costs are an unfair relief when is he going to level the playing field between private car owners buying on H.P. and the plumber who is able to claim a a business expense the H.P. interest on his van. Not to mention the cost of home computers versus one claimed for business use. The list is endless.  I agree with the first writer who pointed out the Chancellor's economic illiteracy 

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By mickeyparish
09th Jul 2015 15:57

Tax relief = subsidy

Thanks Les Smith !  At least someone bothered to read my comment and understand it !

So, Wallender,  I suppose neither companies nor any other body engaged in a business should according to your view be allowed to claim overdraft interest as a genuine business cost, then !

This budget, and this particular part of it,  favours the rich at the expense of ordinary people in their thousands who thought buy to let was just about the only route to provide for their retirement, after successive governments have undermined, not to say destroyed their pensions.

I could add that the dividend tax favours institutions at the expense of ordinary Joe Public shareholders.  Probably all George's friends in the City.

If I had investments in shares, I would be tempted now to ditch any UK shares, at least the ones not in ISAs, and buy foreign company shares, where dividends received are taxed once after deduction of foreign tax.

That way I wouldn't be taxed twice, once as a shareholder and once again by George.

Naturally George is relying on the inertia of the financially unaware hopefully not to have a great sell-off of British stocks.

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By Psyche
09th Jul 2015 16:00

Query on the employer's allowance

Hi all

A query on the employer's allowance.

So they're no longer allowing it for single-director limited companies. What about two-director limited companies, such as husband and wife? Will the allowance be applied to one director, or neither director? And what about single-director limited companies that employ, say, one part-time worker who earns £10,000 per year? Does the employment allowance apply to that worker's earnings only, thus effectively limiting the relief to £260 per year, or does the fact that the company has an employee mean it's entitled to the full £3,000?

Thanks!

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By User deleted
10th Jul 2015 07:41

Without subsidy not really a viable business ..

@mickeyparish

Something in the back of one’s mind recalls that buy-to-let properties are not regarded as a business for inheritance tax – think there was a case on this a while back – could be wrong

Thought the idea was to encourage people out of buy-to-let and release these properties for new entrants to the market and in fact your following comment would suggest that the Chancellors tactic will work as anticipated

‘.. Thousands of affected middle income earners will now have to put their rental properties ( which they bought in desperation of trying to set up something for their retirements ) on the market. Well-off people will be able to buy them cheap ..’

Also many got into that market because they needed to re-locate and could not sell their own property (accidental landlords) – nevertheless understand the EU may get involved with this one and make life even more onerous for accidental landlords

Confused as to why ‘.. And construction firms will stop building badly needed housing ..’ because the right kind of property for a target market will sell – people need homes and would prefer to own than rent

From a personal (ideological) stance rather agree with his approach because in reality it is questionable whether it is a real business or just a route to mitigate ones higher tax liability in the same way as ‘grant harvesting’ in areas such as solar panels/wind farms - which are only really viable if underwritten by the Government - i.e. someone else pays for your tax breaks

Question whether any business that is only viable using this sort of approach can be regarded as business – probably the acid test is – would you do buy-to-let if there were not tax breaks?

If the answer is no then surely that makes the point as to whether it is a ‘proper’ business

EDIT

‘.. Well-off people will be able to buy them cheap..’ - what about youngsters & new market entrants also being able to buy them cheap, which is surely they whole point of the exercise

Interesting post – someone who on the face of it is 'well off' themselves - complaining about how buy-to-let tax breaks have been restricted whilst at the same time failing to mention the issue of a housing shortage and youngsters being unable to get on the housing ladder because of concessions for those with multiple properties - resulting a shortage of available properties

mmm .....

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By AndrewV12
10th Jul 2015 08:49

Forget the froth

2 days on and the budget is not quite as good as it first sounds, basically chancellors use the same old trick the make a big noise about pushing a tx down (leaked months in advance) and then on the quiet push another one up.

 

Example Corporation tax down to 18%, and then tax dividends, why not just leave things as they are.  i am worried about Mr Osborne's motives.

 

The Budget sounds just like a Labour Budget. 

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By Dipa Patel
11th Jul 2015 23:08

Buy to Let


Usually if someone has a buy to let - means they already have their own home and this is additional property on which they charge high rents, get tax relief on the interest and usually this is additional income for them.  Consider those first time buyers who cannot save enough for a deposit to buy their first home because most of their money goes in paying those high rents that the BTL charges, and they cannot get a mortgage because when the bank works out the amount they have to pay on mortgage interest and repayments is higher than what they earn, so they go back to renting forever.  The chancellor should have taken a bolder step in which the BTL get no tax relief on interest and the home owners gets full tax relief (remember the MIRAS), this way the property market remains stable - the BTL will have to sell and the new first time buyers will be able to afford to pay for their new home.  a win win situation for all (except of course for the greedy BTL landlords with their 5th or 6th property).

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By mickeyparish
13th Jul 2015 17:44

Greed vs affordability

I think this debate is now separating itself into 3 camps :

One camp says, it's fair to be allowed to invest your money in buy to let, with or without gearing from a mortgage, just as it's fair to invest in a shoe-shop or any other business.

Another camp is saying :  if you have money, investing it for profit is greedy, you are the source of all evil in society.

The third camp is saying :  Invest your money by all means, but not in buy to let because that drives prices up for first time buyers.

You may have gathered, I'm in camp 1 ), possibly in camp 3 ) but definitely not in camp 2 ).

However, much as I sympathise with camp 3 ), I personally don't believe the driver of higher property prices is buy to let.  It is a basic shortage of buildings going up in places where people have jobs and want to live.  To my mind buy to let investors are helping by providing a ready market for the builders to build for.  Ownership in the sense of owner occupation isn't everything - Germany for example has a very low owner-occupation ratio, and most properties are rented, and people live perfectly happily.  

If it were the case that buy to let was the factor aggravating the housing shortage,  the simplest solution would be to make ownership of property to rent illegal, with say a 10 year horizon for existing landlords to dispose of their rental properties to owner occupiers.  In my view, the market for new build and refurbishment of houses would simply collapse, and the housing shortage would turn into a major crisis.  So I don't really think camp 3 ) have it right.

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By User deleted
14th Jul 2015 09:35

Not really – too narrow focus …

@mickeyparish

Undoubtedly people will channel their money into whatever medium will give the best returns - even if they are not true returns & are skewed by tax relief.

Although, the present buy-to-let debate is really just the catalyst that highlights more a fundamental approach

The problem is that we have created and incentive of substituting ‘debt for equity’ in our society thereby introducing a potentially far more unstable environment – i.e. would the recent 2007-10 crash & resulting problems have arisen in the first place if there was less debt gearing – not so much exposure by individuals or banks?

The underlying issue is whether tax relief should be available AT ALL on any business interest, which would in the long run benefit all everyone by providing a more stable economy

The corollary of all this is -

If all interest relief was removed would you still consider buy-to-let a viable/sound investment?

The response to this question answers your 'Greed v Affordability' post

EDIT
We are currently seeing the results of excessive debt being played out in Greece today

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By mickeyparish
16th Jul 2015 12:09

Gearing as a moral issue ?

the debate moves on....

My contention is that buy to let is no different to any other business, so why penalise it unless it is to socially engineer the housing market ?  That may be a laudable objective, but my feeling is that it will backfire spectacularly because of a reduction in new builds, as a lot of prospective buy to let investors will vanish in the mist.

Whether gearing of a business by taking on mortgages, overdrafts or any other type of loan is immoral, is another issue altogether, and I am not able to make a judgment, except to state the obvious : excessive gearing is clearly dangerous, vid Ireland, Greece and the other Club Med countries, not to mention our own public finances.  In Muslim economies, for example, paying interest is considered sinful.

However gearing in the West seems to be a fact of life, and I doubt if you will find many, if any at all, public companies that do not run on borrowings.

Furthermore, public policy has been to exhort SMEs to borrow more and banks to lend more, whereas many SME owners ( like me ) think that any level of debt is potentially toxic, and for the past 5 years have been minded to pay down debt, rather than raise gearing.

So where does that leave gearing as a moral issue ?  Probably underlying all the problems are the insanely low interest rates which are now on offer, and we all know why those happened.  If money were priced realistically, and not being pumped out by the printing presses, there would be a lot less gearing, many fewer buy to lets, sound public finances, all at the price of a Greek and Spanish style slump and equivalent unemployment levels.

You borrows your money and you takes your choice !

 

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By User deleted
16th Jul 2015 14:26

Not a moral issue either …

Debt over equity is the problem and encouraging debt by using the tax regime makes a very unsound economic base, which in the end takes the money supply out of the hands of the central bank and relinquishes control to the high street lenders

Unrestrained gearing has only come to the fore over the last couple of decades and essentially goes hand in hand with fractional reserve banking

This may explain better -

https://www.accountingweb.co.uk/blog-post/fractional-reserve-banking-printing-money

In this respect you are absolutely right about absurd interest rate levels and moreover they will inevitably influence a timely return to normality – because what happens to those who are highly geared if they get a 4% hike in interest rates (4% being roughly the return on many BTL)

But the point is that without massive levels of debt the world economies would probably not have crashed & burned in the first place because stability would have been paramount. Yes everything would have taken a hit but not to the extent of negative interest rates (some bonds)

We all know why Governments encourage debt but is it the right approach, in the same way as they encourage inflation - to get themselves out of problems – in my opinion it is not the correct approach

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By mickeyparish
16th Jul 2015 15:02

Printing money

Interesting and thought provoking blog,

Recalling some lectures on economics I attended half a century ago, I thought that the way money supply was supposed to grow was through bank lending, and that governments controlled money supply with a number of tools, eg interest rates.  The government's agent nowadays, i.e the BoE, is the wielder of the tools.  Printing money I suppose is what happens when the tools are not being used, and also when the beautifully named technique called "Quantitative Easing" is added to multiply the effect of bank lending, i.e the government lending to itself because no one else wants to lend to anyone else.

 

Going back to the subject, if interest rates revert to 4% ( and BTL loans to a higher level ) landlords will be paying the government in the form tax for the privilege of losing money.  It will be interesting to watch developments thereafter ...

 

BTW, I do wish posters would stop calling the deduction of mortgage interest from profits a "relief".  It isn't and never was, until Osborne chose to refer to it as such.  See the current SA property pages form :

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

It is a "Property Expense".

 

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