Mortgage Interest Relief stopped
I want to write to you about the impacts of the current plans for mortgage interest relief (MIR) and ask for advice.
I have been a landlord since I was 16 through hard work and investing and working several jobs to save up. I have a few properties now that I rent out and have done since I was 16 and have very long term tenants. The tenants are from various backgrounds including people on DSS, people who have been / are bankrupt / Ayslum Seekers / Employed / Self Employed People.
I am a basic rate tax payer and through this scheme am been pushed into a higher tax bracket the difference this may have could be catastrophic. I have always been on minimum wage and have recently finished completing a degree which has allowed me to have a salary which is above minimum wage. However I am now in a situation where because of the mortgage interest changes I may have to declare myself bankrupt and hand back the properties to the bank, I am sure this applies to other landlords also from the research I have done.
The Mortgage Interest Changes encourage individuals now going into the buy to let market to set up a limited company and run the properties as a business in doing this remaining at the 20% tax bracket. However individuals already with properties they rent out are unable to do this for several reasons as follows
Unable to refinance their mortgages because of the loan to value or because of the commercial maximum loan to value possibilities
The individuals existing mortgage companies not allowing a transfer of the mortgage into a limited company for their own reasons.
If mortgage companies do give their consent to transfer the mortgages into a limited company, the individual will be subject to substantial capital gains tax as it is seen as selling the properties into the company. There are also potentially stamp duty implications also.
Current situation 2017/18
Rental Income on paper 92,623
Plus Income from Job 25,000
Minus Rental Expenses 32,892
Minus MIR 44572
Minus Personal Allowance £11500
Total taxable income (Income from job and properties) - £28659 pay tax 20% £5731
If the changes with MIR go ahead it will look like this
Rental Income on Paper £92,623 (£44572 of this is mortgage payments)
Plus Income from Job £25,000
Minus Rental Expenses (may change) £32,892
TOTAL INCOME 84,731
MINUS PERSON ALLOWANCE 11,500
TOTAL TAXABLE INCOME £73231
TAXABLE INCOME £73,231
£45,000 Tax at 20% approximately £9000
£28,231 Tax at 40% approximately £11292
TOTAL TAX PAYABLE £20292 COMPARED TO £5731
In reality my actual profit from the properties is a year is £55,000 once I have paid the mortgages if you add my income in £25000 from employment this is 75, 0000
If you than deduct the expenses money I have spent improving the properties £32,892 this year
My total income is £42,108 if you then deduct my personal allowance my £11,500 my actual income is £30608 in the 20% tax bracket
As you can see how I am going to pay £20292 potential tax bill when my total actual yearly income is going to be £30608 and I will have £10,000 a year to pay my own personal mortgage and bills.
The problem with the planned changes to legislation are you are charging tax to people like me on turnover rather than actual profit when individuals like me are not going to have the money. As you can see from the above example I would not be able to find £ 20292 when I only earn £25,000. The rental income I receive I have to make mortgage payments from, so the actual rental income is not as stated on paper as profit as the mortgage payments have not been deducted, also is does not take into consideration voids, mortgage rate increases. Rental expenses can be variable also and impact on the above calculation. Therefore I have no actual rental income to pay the tax bill either.
Can we please look at campaigning again or does someone have an answer to this please.
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