Forced to become a tax exile?
Mark Alexander - Published on 10/08/2015
Like many of us, I have often thought about moving to a better climate. The reasons I haven’t done so are much the same as many others; ageing parents, friends, family, hobbies, business interests etc.
However, it now seems I have no choice.
The restrictions on finance cost relief proposed in the Budget will render my property business insolvent unless I take drastic action.
I’m hoping that by living overseas I will be allowed to elect to give up my personal tax allowances and pay a flat rate of 20% tax on my UK income and my taxable profit will be calculated under the rules proposed in the budget, i.e. before finance costs, but as an overseas investor I will only pay 20% tax. I’ve read something about this and have written to my accountants asking them to check whether it is applicable to landlords. I will post their response in the comments section below. If it is true then I will then claim the 20% finance cost relief and I will only be worse off to the tune of losing my nil rate band tax allowance. Fingers crossed! You can follow this discussion thread by leaving a comment or adding your email address in the box just below this article and then clicking the green pulsating button. You will then receive a notification email every time a new comment is posted.
If I stay in the UK my income tax will exceed my real profit. That would eventually lead to my insolvency.
This scenario is very similar to my own >>> http://www.property118.com/?p=76673
In any event, I must sell at least some of my properties because I need to pay off a financial settlement to my ex-wife. Raising additional cash by refinancing would only make the problem worse.
It isn’t viable for me to sell my properties whilst living in the UK. Not that I’m in negative equity, far from it in
fact. The net sale proceeds would easily be sufficient to repay my mortgages, even after factoring in the 5% early repayment charges due to fixing my interest rates long term. However, that doesn’t mean everything is rosey. I wouldn’t have enough money left over to pay the CGT and other costs of sale.
I cannot incorporate (become a limited company) because, for me, this would trigger the same effects as a sale. There is no CGT rollover relief available for most landlords, although it is possible for some. And before somebody points me to the upper tier tribunal of Ramsay vs HMRC, that case is highly unlikely to apply to me because I outsource everything possible, being a landlord is not my primary source of income, my portfolio isn’t owned as a partnership, I don’t have an office, I don’t employ anybody and I spend no more than a few hours a week running my portfolio. Hence I cannot prove that being a landlord is my full time occupation. It might be possible for other landlords to restructure their affairs to qualify for incorporation relief but for me any planning of that nature would be highly unlikely to succeed.
It is theoretically possible to increase rents but that will be highly dependent upon market conditions and affordability of tenants. I might also be able to cut costs and become a slum landlord, piling migrant workers into my properties to ‘sweat my assets’. However, that’s not for me either, it is a short sighted strategy in my opinion and will only serve to further destroy the PRS reputation, thus leading to even further regulation.
In other words, unless I go and live overseas to live in a tax haven to avoid CGT before I sell up (effectively wiping out any tax on capital growth up to April 2015) the insolvency of my property portfolio is an inevitability for me.
How many other landlords are in this position I wonder?
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