Firstly and most importantly, we want to say thank you for reading our letter and taking a step closer to making the decision to work with us. At this point you can either read on to get to know us a bit better or you can call us and have a chat. Either way is good as far as we're concerned but we believe there's really no substitute for a fully interactive rather than virtual dialogue so we would love to hear from you.
Like many landlords, you probably feel as though there's a conspiracy against you with the recent 3% SDLT penalty for investment properties and as the first phase of the Section 24 amendment starts to take hold. For many the thought of restructuring, hybrid tax planning, LLPs, Capital Gains Tax on transfer and incorporation is of no interest but equally there is little appetite for losing anything up to 80-90% of their income.
A central tenet of tax law has always been:
Profit = income – costs
but uniquely this logical and enduring paradigm no longer applies for ‘individual’ landlords.
Caroline's story
Current tax: £15,200. Tax in 2020/21: £54,100. Increase: 256%
Last year, Caroline earned £65,000 from her property portfolio which makes her a high rate (40%) taxpayer. She has no other income. She has one child but receives no child benefit.
Her properties generate £333,000 in rent and her maintenance & other business costs total £113,000. She pays £155,000 in mortgage interest. Under the current tax rules Caroline makes a net profit after all her costs of £65,000, on which she pays income tax of £15,200. This means her annual "take home" income (after tax) is £49,800. Her effective tax rate is therefore
23.4%.
After Section 24 is fully implemented, Caroline’s net "profit" (actually income) would be deemed to be a massive £220,000. The tax will be £54,100, leaving just £10,900 a year for herself and her child to live on. Her effective tax rate would now be
83.2%
of the real profit. As if that wasn't bad enough, as a double-whammy, her artificial "income" of £220,000 will mean she is pushed well into the very highest rate tax band so that she also loses the benefit of the personal allowance. Ouch.
In the face of this onslaught of additional cost nobody could blame Caroline - or you - for thinking that now would be a good time to sell up and retire (whatever age you are!) and that's where we come in by:
That said, you might not be ready yet to take such a big decision but we can still help to make your life easier and give back to you your most irreplaceable asset... your time. Please visit our landlord section for more information.
If you like the sound of anything you've read so far, just