Buy-to-let tax changes explained
This is Money Podcast
This is Money
4.4 • 735 Ratings
🗓️ 30 September 2015
⏱️ 3 minutes
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Summary
This is Money editor Simon Lambert runs through who might be affected by changes to buy-to-let tax announced by Chancellor George Osborne and due to come into effect in 2020.
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Hosts: Georgie Frost, Simon Lambert, Lee Boyce, Helen Crane
Producer: Georgie Frost
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Transcript
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| 0:00.0 | For landlords who've got big mortgages, so who basically are borrowing at sort of the upper end of what you will lend on by to let, which is 75% loan to value, so they put down 25% deposit. |
| 0:11.0 | Many of them won't actually be making that much money in profit. And there is, at the moment, a system whereby you can offset your mortgage interest against the income tax that you |
| 0:21.7 | would pay on the rent. And George Osborne decided that he wasn't going to allow all of this anymore. |
| 0:27.2 | It's been a bone of contention for some time. It's going to be cut down to the basic rate of tax relief |
| 0:31.9 | in 2020. And for those landlords who are not making a particularly large amount in rent, their yields are quite low, they might have quite big mortgages, that could seriously dent their profits. |
| 0:42.8 | And there's a suggestion that actually some of them will basically start losing money. |
| 0:45.8 | The principle behind this is you only pay tax on your profit. |
| 0:49.2 | So your mortgage interest, you take that off the rental income, that leaves your profit, and you pay tax on that profit. Now, what you're going to be doing now is you get your rental income, you get taxed on that, and then you get a smaller breakback for the mortgage interest. So you're actually going to be taxed on your revenue. Now, there is an argument against this from people who say, well, but if I borrowed money to invest in shares, I wouldn't be able to offset that against my tax. |
| 1:12.7 | But then it does miss the point that the whole concept of Baitelet was built up that you did borrow money to invest in property |
| 1:18.6 | and that you don't borrow money to invest in shares unless you are a Chinese stock market gambler |
| 1:24.7 | who has learned a valuable lesson over the past week. |
| 1:27.7 | Indeed, indeed. |
| 1:28.9 | One final one on this before we do talk a bit more about China, |
| 1:31.5 | but your journalist Mark Schofman looking at this, |
| 1:33.5 | is it worth moving your buy-to-let into a company in order to keep the mortgage interest relief? |
| 1:39.4 | What was his conclusion there? |
| 1:42.0 | Maybe. |
| 1:43.1 | Right, great. |
| 1:44.0 | Moving on. |
| 1:45.6 | So look, there's been this suggestion that people will do this to dodge it. |
| 1:48.9 | Because if it's a company, you can still offset your debt costs, your mortgage. |
| 1:52.7 | But actually, for someone who's got one property or two properties, this just isn't really |
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