Quite glorious

At the top end of the market changes to stamp duty, holding property in offshore companies and rules to make sure capital gains tax are all in themselves welcome and to he applauded.

Likewise increasing the stamp duty rate on buy to let property from April this year to dampen speculative activity makes sense.

And reducing tax relief on interest paid on buy to let property loans to the basic rate of income tax also makes a lot of sense: there is an iniquity that owner buyers get no such relief.

So each measure is welcome. It’s just the timing. The buy-to-let market was already overheated. And now there is feverish activity to close deals before the new stamp duty deadline comes in. Will that be a market peak? The Nationwide data suggests it might be. That current peak looks unstable to me.

And will the interest deduction rules then give rise to an off loading of propery? They might.

And there is at the very least a recessionary environment in the UK right now. In which case these tax law changes, right as they are, look like they will go down as a contributory factor if the housing bubble bursts.

So, Osborne does everything that Ritchie demands and supports and only now Ritchie springs the surprise that this might cause a recession?

He’s a helluva macroeconomist, isn’t he?

32 thoughts on “Quite glorious”

  1. Most accountants seem to think that tax relief on interest should be kept. But then Ritchie isn’t like most accountants.

  2. “there is an iniquity that owner buyers get no such relief”

    Well yes, they don’t get tax relief for the interest paid because they aren’t taxed on the (deemed) income from the property.

    Taxed on the income, you get to deduct expenses. Not taxed on the income, no relief for expenses. What’s inequitable about that?

  3. Ritchie appeared (audio only off camera) on a BBC TV programme this week about a Welsh small town business community which was setting up a tax avoidance scheme a la Starbucks. His comment was an irascible criticism that it wouldn’t work and so they should not be doing it.

    He sounded like what he is, a humourless paternalistic cvnt.

  4. “there is an iniquity that owner buyers get no such relief”

    I noticed that one too. Is the situation in the UK is similar to Australia? Buy/build a property to rent then the expenses involved with doing that are tax deductible, but you’re liable for capital gains tax when you sell. Owner buyer, no deduction of mortgage and maintenance, but also no capital gains tax. For me, that’s a damn good deal.

  5. “And reducing tax relief on interest paid on buy to let property loans to the basic rate of income tax also makes a lot of sense: there is an iniquity that owner buyers get no such relief.”

    Stupid ignorant cvunt.

    Let property is a source of income so costs in respect of it a legitimate deduction.

    Besides, I sell my own home – no CGT, I sell a house I’ve been letting, CGT.

    If you argue the interest deduction is wrong, then surely the CGT position is wrong.

    Murphy must be one of few who suffers from both myopic and blinkered vision.

  6. Ltw

    Exactly the same here. Or was until ranting twats like Murphy gained the ear of a government pig-ignorant on basic tax matters

  7. Likewise increasing the stamp duty rate on buy to let property

    I’d really like to be enlightened on this one. How would that work, exactly? Stamp duty, as I understand it, is basically a fee (or bribe, arguably, hence its name) for imprimatur from the guv’ment to endorse a transaction. If I buy a house, how the hell does the government know whether I’m planning to live in it or rent it out? Do you have to make some sort of declaration or what?

  8. That BBC programme was ridiculous. No-one on it seemed to have thought about what would happen when they wanted to actually *spend* any of that money that they sent offshore.

  9. Thanks AndrewC – I thought so, but the rules vary so much from place to place I wasn’t sure. Ok, then, he’s definitely an idiot. The CGT exemption is way more valuable than annual deductions. You would think an accountant would know this.

  10. @Glendorran

    The point massively missed and ignored.

    Suppose they could get the money into a IOM company and save tax. As you say, what happens then? They gaze across the Irish Sea at it while slowly starving to death as they’ve no money to buy food with?

    It’s stupid programmes like that that help foster the ignorance about tax that most people have.

    Thank God. As I’m a tax advisor.

  11. Little story about a complete dickhead I worked with. He told me he thought the way to go was to set yourself up as a company and contract to your employer, and you would only ever have to pay company tax. This in about 2008, long after that was a thing. Now, I had done the independent contractor thing for years before that (separate company, separate books, my salary paid out with PAYE withheld) and told him he was talking bollocks, it doesn’t work that way.

    But no, he was full of stories about how people paid all their household expenses out of their company accounts, bought cars, all that. All I said to him “that’s how self-assessment works, good luck when you get audited because your business expenses are way too high for your income”.

    He didn’t even want to take free advice. Walked off in a huff.

  12. “I read this week that Murphy is the go-to economics guy for Private Eye! Say it ain’t so!”

    Well, it is a satirical magazine.

  13. “Stupid ignorant cvunt.”

    It’s hard to see why. Sounds like a legitimate point of view.
    Get a loan to buy a buy-to-let. Get an allowance for the interest against the income stream. Borrow the same to buy a share portfolio. Can you offset the interest against the dividend income? I think not. Care to correct? No CGT immunity either.

  14. Not really. Buy a house, live in it, you’re not being taxed upon the housing services you are getting from the house. Buy to let, you are being taxed on the income from letting out those housing services.

  15. private eye is fun, but their city column is riddled with errors and a poor understanding of finance and economics. If Murphy is a source, it would explain a lot… He has no understanding of anything and anyone trusting him is basically signalling stupidity.

  16. @BiS – “Borrow the same to buy a share portfolio. Can you offset the interest against the dividend income?”

    Because a share portfolio is not a business. Buying and selling shares (unless you are a broker) isn’t business income: Salt v Chamberlain.

    The point is letting is taxed as a business and now they have singled out this business for interest restriction.

    Besides, whether investing in shares or lettings property, the rules have been the same for decades. Now they suddenly change them for no logical tax reason.

  17. Rob: Well, it is a satirical magazine

    It used to be a satirical magazine.

    I gave up my subscription a few years ago when I noticed that it wasn’t making me laugh any more and it’s stale content is generally priggish and worthy. Rather like Ian Hislop, really.

  18. Private Eye is nowadays pure establishment. Nothing hard hitting in it and its exposes are nowhere to be found. At least Paul Foot used to do some journalism.

  19. Be interesting to see what happens to the top end of the property market when the new SD rates kick in. Personally I think the new rates are absurd and it is likely that the market will cease to function when people refuse to pay.

  20. @AndrewC
    Precisely. What’s a business do? Produces an income stream. Why else would you have a business? A share portfolio? Same purpose. So why isn’t a share portfolio treated the same as a business if a buy to let is? A buy to let is no more of a business.

  21. @bis

    The HMRC treat Buy to Let as a business.

    You don’t spend 20-25% of the income from a share portfolio on managing it, new bathrooms, new carpets etc.

    Osbo didn’t try to make a serious justification for his measures; he’s just eating Labour’s lunch and using it to reduce the deficit, while helping create an environment where corporates can compete in the lettings market.

    As for the house price bubble. Currently there is no house price bubble outside London, Outer London, and bits of the South-East, and maybe small areas of metro-cities.

    Murphatwat’s decision to use National Average date not adjusted for inflation is revealing.

  22. “new bathrooms, new carpets etc.” is what you’re letting isn’t it?
    And one doesn’t get to claim portfolio management fees against tax (as far as I know. Wouldn’t pay them although they were costing Dad a packet)

  23. @BiS

    Pretty much what Matt W says.

    There is no active management of the asset with shares. You buy them. You sit there and hope they go up in value. But you can’t influence what happens in any way. You can’t improve the share or make it increase in value or make it pay out higher dividends.

    A property needs managing. You can improve it, repair it, find tenants, get rid of tenants, put the rent up, reduce the rent, decide to go HMO or single let.

    Passive investment – Active investment.

    The latter is a business, the former isn’t. Read Salt v Chamberlain.

  24. @bis

    I’m not sure what your point is.

    Bathrooms, carpets, kitchens, all wear out. Gutters need cleaning, roofs need replacing, damp proof courses need to be replaced, new regulations need to be met, boilers have a limited life span, insulation needs to be installed, walls need to be painted.

    And that leaves aside the regulation and the fees.

    How many new boilers have you installed in your investment portfolio in the last 25 years? At about £700-1200 a pop.

    The former is a business. The latter is not.

    Make a critique by all means, but make it a cogent one.

  25. Actually I’m quite aware of what’s involved in letting properties. It was my business, in a manner of speaking. And I don’t have any objection to depreciation & maintenance etc being set against earnings. Management’s another matter. If you can’t manage the business yourself, you’re not a business, are you? And I really don’t see why interest should be. But then I’m very much against lending for buy-to-let. Don’t think it should happen. It’s one of the things artificially inflates house prices & serves no useful function.

  26. “I’m very much against lending for buy-to-let. Don’t think it should happen. It’s one of the things artificially inflates house prices & serves no useful function.”

    I agree. It makes the property market frothy and unstable.

  27. Ltw: “How would that work, exactly? … If I buy a house, how the hell does the government know whether I’m planning to live in it or rent it out?”

    If you borrow money to buy the property you enter into a contract with the lender for that money. That contact usually restricts the use the asset can be put to while the contact is in place (ie, the duration of the loan), and that is used to tie in with the Stamp Duty payment.

    Of course, the way around this is not borrow money to buy property. Inherit-to-let and gift-to-let is completely untouched. The Duke of Westminster must be relieved. And corporate borrowing is untouched, so my Housing Association can still borrow money to Buy property To Let it.

  28. Ltw: “How would that work, exactly? … If I buy a house, how the hell does the government know whether I’m planning to live in it or rent it out?”

    It is not just BtL property but any ‘second home’. At the moment it all depends on solicitors asking their clients what they intend. But I suspect in the long run both the lesser rate of SDLT for a ‘principle private residence’ and the relief from Capital Gains Tax will be more strictly monitored and require evidence rather than just accepting what is declared.

    @Matt W
    Currently there is no house price bubble outside London, Outer London, and bits of the South-East, and maybe small areas of metro-cities.
    Central London prices have been overall flat for the past year, That ripple will also spread this year. There is a N./S. divide, prices are rising in the S., but falling behind the average in the N.

Leave a Reply

Your email address will not be published. Required fields are marked *