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The buy-to-let landlords hit hardest by tax changes

The type of landlords who have been hardest hit by property tax changes have been revealed.

Among them are higher rate taxpayers who invest with a big mortgage. Previously, this was the most tax efficient way of investing in buy-to-let, but these investors have seen their income returns slashed by more than a half as a result of the stamp duty and tax relief on mortgage interest changes.

The findings are from research carried out exclusively by accountants Blick Rothenberg for MailOnline Property and ThisIsMoney.

He explained that these calculations do not factor in the capital growth of a property, but instead the income return. Many long-term landlords will have made big profits from house prices rising. 

We take a look at which landlords have been hit hardest by the changes to stamp duty and tax relief on mortgage interest

We take a look at which landlords have been hit hardest by the changes to stamp duty and tax relief on mortgage interest

In 2016, the then Chancellor, George Osborne, introduced a stamp duty surcharge of 3 per cent on the purchase of second homes and buy-to-lets, and began to withdraw the full tax relief available on mortgage interest.

The stamp duty change meant much bigger tax bills at the point of purchasing a property, but the removal of mortgage interest tax relief created an ongoing erosion of returns. 

Before this was introduced, landlords could deduct all mortgage interest from rental income and only pay tax on their difference, which amounted to their profits.

Under the new system, landlords must add rental income to their other income and pay income tax on the amount in full and then receive a basic rate tax credit at a maximum of 20 per cent of their mortgage interest.

This effectively means they are paying tax based on revenue not profits. 

PROPERTY RETURNS FOR HIGHER RATE TAXPAYER WITH A 25% DEPOSIT 
Purchase price £256,000
Add: SDLT £10,480
Add: legal fees (estimated) £1,000
£267,480
Equity in property (25%) £64,000
Mortgage required £192,000
Rental income £11,628
Less mortgage interest £6,067
Less normal expenses £1,744
Profit before tax £3,817
Income tax at 40% £3,954
Less: 20% credit for mortgage interest £1,213
Income tax payable £2,740
Profit after tax £1,077
Return on investment 1.43%
Source:  Blick Rothenberg    

Blick Rothenberg’s research reveals who has lost out on the tax changes, and to what degree – with some landlords doing better than others. 

For example, those landlords who are higher rate taxpayers and use a smaller deposit and bigger mortgage to invest in property have gone from being most tax efficient to hardest hit.

They have seen their returns fall by more than a half now that the effect of the full tax relief on mortgage interest has taken hold.

Combined with the capital gains tax that landlords already pay, the measures are a hard pill for landlords to swallow.

The tax relief reduction was phased in over four years and during that time, some landlords decided to quit the market.

Increased regulation of the sector, along with the new tax changes has meant some landlords believe investing is no longer worthwhile and many have sold up and cashed in their house price gains.

The profit after tax and return on investment for higher rate taxpayers investing in property with different sized deposits in 2022

The profit after tax and return on investment for higher rate taxpayers investing in property with different sized deposits in 2022

How does it compare to the old tax regime? The profit after tax and return on investment for higher rate taxpayers investing in property with different sized deposits in 2016

How does it compare to the old tax regime? The profit after tax and return on investment for higher rate taxpayers investing in property with different sized deposits in 2016

What profit after tax can you expect? 

Our figures show that investing in an averagely priced property with a deposit of 25 per cent produces a profit after tax of just over £1,000 for higher rate taxpayers under the current regime.

This equates to a return on investment of 1.43 per cent, down from a profit before tax of £2,290 and 3.38 per cent before the tax changes were introduced in 2016. 

It means these investors have seen their returns cut by 52.96 per cent due to the tax changes.

And for the same type of higher rate taxpaying investor with a slighter larger deposit of 40 per cent, there is a profit after tax of around £2,000 under the current tax regime.

This equates to a return on investment of 1.80 per cent, down from a profit before tax of £3,018 and 2.84 per cent before the 2016 tax changes.

The figures assume an annual rent of £11,800 based on the average monthly rent of £969, the highest level in 13 years, according to Zoopla.

And we used the average price of a property of around £256,000, the average at the time of calculation according to Nationwide Building Society.

PROPERTY RETURNS FOR HIGHER RATE TAXPAYER WITH A 40% DEPOSIT
Purchase price £256,000
Add: Stamp duty £10,480
Add: legal fees (estimated) £1,000
£267,480
Equity in property (40%) £102,400
Mortgage required £153,600
Investment in property (equity plus stamp duty and costs) £113,880
Rental income £11,628
Less: Mortgage interest £4,854
Less: Normal expenses £1,744
Profit before tax £5,030
Income tax at 20% £3,954
Less: 20% credit for mortgage interest £971
Income tax payable £2,983
Profit after tax £2,047
Return on investment £1.80%
Source:  Blick Rothenberg  
Higher rate taxpayers with a 40% deposit are among the hardest hit, seeing their returns slashed by as much as a third

Higher rate taxpayers with a 40% deposit are among the hardest hit, seeing their returns slashed by as much as a third

The profit after tax and return on investment for basic rate taxpayers investing in property with different sized deposits in 2022

The profit after tax and return on investment for basic rate taxpayers investing in property with different sized deposits in 2022

How does it compare to the old tax regime? The profit after tax and return on investment for basic rate taxpayers investing in property with different sized deposits in 2016

How does it compare to the old tax regime? The profit after tax and return on investment for basic rate taxpayers investing in property with different sized deposits in 2016

Landlords who are basic rate taxpayers fare better

By contrast, a basic rate taxpayer with a 40 deposit will currently see a profit after tax of around £4,000, which is similar to what was expected before the tax changes.

It is the equivalent of a current return on investment of 3.53 per cent, down from 3.79 per cent under the old tax regime.

That figure rises marginally to 3.83 per cent for basic rate taxpayers when the deposit is 30 per cent. The profit after tax for this group at this level of deposit is £3,377.

The return on investment goes down when the investment in the property is higher relative to the profit made – and the higher stamp duty means the investment in the property has increased under the new rules, hence producing a lower percentage return. 

Nimesh Shah, of Blick Rothenberg, said: ‘Property has become increasingly taxed in the last five years, with higher stamp duty and mortgage interest relief restriction taking full effect. There are now very few allowances and reliefs in the UK tax system.

Property has become increasingly taxed in the last five years 

‘This is illustrated by a higher rate tax payer with a 30 per cent deposit who invested in the average property now would generate an return on investment of 1.59 per cent now compared with almost double that return of 3.14 per cent prior to the tax changes.’

However, he went to explain that it is still possible to get a potentially reasonable return for landlords who are basic rate taxpayers.

He explained: ‘For a basic rate taxpayer, it would be sensible for someone to have 30 per cent equity for a reasonable return of 3.83 per cent – this would require equity of about £77,000 to purchase an average priced property.

‘For a higher rate taxpayer, the effect of the mortgage interest relief restriction means that the return is significantly more meagre. To generate a just over 2 per cent return, a 75 per cent deposit of £192,000 would be required, which is quite stark.’

The returns on investment for different types of landlords depending on their tax rate and their amount of equity

The returns on investment for different types of landlords depending on their tax rate and their amount of equity

He also said investors need to consider the time and inconvenience of being a landlord, such as a late night call out to fix a boiler – although in this calculation, the figures factor in a property management fee to help deal with such events.

The management fee falls under the ‘rental expenses’ figure used in the calculation, which also includes service charges and some repair costs. The rental expenses are assumed to be 15 per cent of rental income.

For higher rate tax payers, the figures also assume that the personal allowance is fully used against other income.

Buy-to-let mortgage rates 

The figures include a stamp duty surcharge of 3 per cent, paid when the property is purchased, and a rate of 3.16 per cent where a buy-to-let mortgage is used. 

This mortgage rate is the average for a five-year fixed rate buy-to-let deal, according to Moneyfacts. The calculations do not take into account how mortgage rates vary depending on the amount of equity a borrower has.  

Those investors with maximum equity and no mortgage in their property investment have seen returns unchanged in monetary values between the current and former tax regimes.

For higher rate taxpayers, the profit after tax for this group is £5,930, while for basic rate taxpayers it is £7,907. 

For a basic rate taxpayer, the rental profit after tax remains the same under the current rules. 

This is because the mortgage interest relief restriction effectively continues to provide full relief for mortgage interest at 20 per cent due to the 20 per cent tax credit. And 20 per cent is also the basic rate of income tax. So while the exact mechanics have been changed, the impact of the tax changes remains the same for these investors.

It is important to do your research before investing in property, including looking at whether it is beneficial to do so via a company structure, where different tax rules apply.

Within a company structure, full mortgage interest can still be claimed, with tax calculated solely on profits not overall revenue, and paid at the corporation tax rate.

However, there will be extra tax to pay on money taken out of the business and buying a property via a company will not suit everyone, particularly those who have a minimal amount of other assets and income. 

Mark Harris, of mortgage broker SPF Private Clients, said: ‘The buy-to-let market has undoubtedly become tougher to navigate in recent years with various tax and regulatory changes aimed at landlords.

‘Making a profit has become more difficult so it is more important than ever to do your research carefully, making sure you buy in an area with strong yields. Many landlords are choosing to buy via limited companies rather than in their own names since the reduction in mortgage interest tax relief and those with the largest amount of equity in their investment properties tend to enjoy the highest returns.

‘While the market is tougher, many people still prefer to invest in bricks and mortar rather than the more volatile stock market, or leave their money in a savings account, earning next to nothing in interest.’

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Culture

‘Mrs. Doubtfire’: The highlights Of Robin Williams’ Role That defined His Artistic Greatness

The highlights Of Robin Williams’ Role That defined His Artistic Greatness

The Voice Of EU | One of the most versatile comedian and actor Robin Williams left an indelible mark on an entire generation throughout the 1990s, evoking both laughter and tears. His portrayal of a strict yet endearing housekeeper in the hit film “Mrs. Doubtfire” (1993) resonated deeply with audiences worldwide, propelling it to resounding success across global boundaries.

Señora Doubtfire Robin Williams
Robin Williams in a scene from ‘Mrs. Doubtfire’ (1993). Archive Photos (20th Century-Fox / Getty Images)

Williams played the role, despite the adversities and addictions that plagued his life at the time, by putting aside the devised script and becoming a master of improvisation during the filming of the movie, which brought in more than €400 million.

In the year of its release it was only outdone by Jurassic Park (€1 billion). This is what its director, also an avowed admirer of the American actor, explained on the occasion of the 30th anniversary of Mrs. Doubtfire’s debut on the big screen: “It took me three months to rewrite the script. I sent it to Robin and he said he loved it.” After Williams’ suicide in 2014, in an interview for Business Insider magazine, Chris Columbus unveils details that were buried 30 years ago.

“Four and a half hours, maybe five,” is the time in which, according to the director, Robin Williams was able to play Mrs. Doubtfire, a characterization for which the film earned the Oscar for Best Makeup. The actor was not comfortable in portraying his role: a father who disguises himself as a housekeeper in order to spend more time with his children after a bitter divorce. For him, it presented a challenge. “We never could shoot two consecutive days of Robin as Mrs. Doubtfire. It was a punishing day for him, so always the next day, we would shoot him as Daniel (the father),” the director of the film reveals three decades after its release.

Comedy is acting out optimism.” — Robin Williams

In between the laughs and moments that are etched in the minds of many, Columbus describes the challenge of keeping actors such as Pierce Brosnan and Sally Field, who played leading roles in the film, from breaking away from the script of their characters while Williams was at his most unrestrainedly creative.

Indeed, according to the director, his boundless energy even created situations where the script supervisor could not keep up, resulting in unrepeatable and spontaneous takes. “None of us knew what he was going to say when he got going and so I wanted a camera on the other actors to get their reactions.” Most of the sequences in the film, and specifically all of those featuring Williams, were the result of an incredible amount of improvisation from the American comedian. “If it were today, we would never end. But back then, we were shooting film so once we were out of film in the camera, we would say to Robin, ‘We’re out of film.’ That happened on several occasions,” recalls Columbus.

“Hey boss, the way I like to work, if you’re up for it, is I’ll give you three or four scripted takes, and then let’s play.” This was the actor’s first warning to the director of Mrs. Doubtfire. Robin Williams was a significant figure in Chris Columbus’ life, and he still is to this day. Not only because he was responsible for his move to San Francisco, the actor didn’t want to shoot anywhere else, but due to his ability to make people laugh and cry at the same time. “Williams wanted the film to be shot there because he was living in San Francisco with his wife, Marsha, and their children. Thanks to him I fell in love with the city that has become my home,” he explains.

“You will have bad times, but they will always wake you up to the stuff you weren’t paying attention to.” — Robin Williams

The director also reminisced about some memorable scenes that contributed to the film’s status as a cinematic masterpiece, as perceived by many. However, what stood out the most was his innate ability to improvise: “The entire restaurant sequence was remarkable. When Robin, portraying Mrs. Doubtfire, accidentally loses his teeth in his drink, you can see the joy on Robin’s face; he’s almost smirking to himself for coming up with that.” Following the success of the Mrs. Doubtfire premiere, the production team is currently exploring ways to honor Williams and his portrayal in the film, although no definitive plans have been made yet. “There are approximately 972 boxes of footage stored in a warehouse somewhere in California. There’s something truly special and enchanting about his performances, and I believe it would be exciting to delve deeper into it.”

Despite initial reservations about creating a sequel, the notion of a new spin-off gained traction shortly before the actor’s tragic passing on August 11, 2014, at his residence in Paradise Bay, California. “Robin’s only concern was: ‘Boss, do I have to spend as much time in the suit this time around?’ The physical toll of portraying Doubtfire was immense for Robin; it felt like running a marathon every day,” the director recounts. Following a brief meeting at the actor’s home, and a simple handshake, Chris Columbus began outlining the script mere days before the unfortunate event. “During the rewrite, we contemplated reducing the role of Doubtfire. However, Robin’s untimely demise extinguished any hopes of a sequel,” he laments. Although not spearheaded by its creator, Mrs. Doubtfire has found new life as a stage musical. “What set him apart as a performer is that there was no one like Robin Williams before him, and there will never be anyone like him again. He was truly one-of-a-kind,” reflects the actor’s superior.

Mrs. DoubtfireRobin Williams and Matthew Lawrence in a scene from ‘Mrs. Doubtfire’ (1993).

In addition to the director, another Mrs. Doubtfire star who later spoke of Robin Williams’ brilliance was Matthew Lawrence, who played Daniel’s son. Lawrence was just a teenager in the film, which also gave a debut to his co-star Mara Wilson, the unforgettable Matilda. One day Lawrence went to Robin’s dressing room and did not expect what he was told: “‘Stay away from drugs, particularly cocaine.’ He was being serious and told me: ‘You know when you come to my trailer and you see me like that?’ He’s like, ‘That’s the reason why. And now I’m fighting for the rest of my life because I spent 10 years doing something very stupid every day. Do not do it.’ I stayed away from it because of him”, Lawrence recalled in an interview with People magazine in March 2022.

The lesser-known chapter of Williams’ life, while unrelated to his demise, shed light on the inner struggles of a comedian committed to bringing joy to others yet grappling with profound personal sorrow. “As charismatic as he appeared on screen, I’d often visit him in his trailer for chats, he was tormented. It was truly agonizing for him. He didn’t conceal it. He confided in me about his battles with addiction,” the actor concluded.


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Congratulations, Privacy Just Took A Great Leap Out the Window!

Your Data Is Being Used Without Your Permission And Knowledge

The Voice Of EU | In the heart of technological innovation, the collision between intellectual property rights and the development of cutting-edge AI technologies has sparked a significant legal battle. The New York Times has taken legal action against OpenAI and Microsoft, filing a lawsuit in Manhattan federal court. This legal maneuver aims to address concerns surrounding the unauthorized use of the Times’ content for the training of AI models, alleging copyright infringements that could potentially result in billions of dollars in damages.

READ: HOW YOUR DATA IS BEING USED TO TRAIN A.I.

This legal tussle underlines the escalating tension between technological advancements and the protection of intellectual property. The crux of the lawsuit revolves around OpenAI and Microsoft allegedly utilizing the Times’ proprietary content to advance their own AI technology, directly competing with the publication’s services. The lawsuit suggests that this unauthorized utilization threatens the Times’ ability to offer its distinctive service and impacts its AI innovation, creating a competitive landscape that challenges the publication’s proprietary content.

Amidst the growing digital landscape, media organizations like the Times are confronting a myriad of challenges. The migration of readers to online platforms has significantly impacted traditional media, and the advent of artificial intelligence technology has added another layer of complexity. The legal dispute brings to the forefront the contentious practice of AI companies scraping copyrighted information from online sources, including articles from media organizations, to train their generative AI chatbots. This strategy has attracted substantial investments, rapidly transforming the AI landscape.

Exhibit presented by the New York Times’ legal team of ChatGPT replicating a article after being prompted

The lawsuit highlights instances where OpenAI’s technology, specifically GPT-4, replicated significant portions of Times articles, including in-depth investigative reports. These outputs, alleged by the Times to contain verbatim excerpts from their content, raise concerns about the ethical and legal boundaries of using copyrighted material for AI model training without proper authorization or compensation.

The legal action taken by the Times follows attempts to engage in discussions with Microsoft and OpenAI, aiming to address concerns about the use of its intellectual property. Despite these efforts, negotiations failed to reach a resolution that would ensure fair compensation for the use of the Times’ content while promoting responsible AI development that benefits society.

In the midst of this legal battle, the broader questions surrounding the responsible and ethical utilization of copyrighted material in advancing technological innovations come to the forefront.

The dispute between the Times, OpenAI, and Microsoft serves as a significant case study in navigating the intricate intersection of technological progress and safeguarding intellectual property rights in the digital age.


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Conflicted History: ‘Oppenheimer’ And Its Impact On Los Alamos And New Mexico Downwinders

‘Oppenheimer’ And Its Impact On Los Alamos And New Mexico Downwinders

The Voice Of EU | In the highly anticipated blockbuster movie, “Oppenheimer,” the life of J. Robert Oppenheimer, the man behind the first atomic bomb, is portrayed as a riveting tale of triumph and tragedy.

As the film takes center stage, it also brings to light the often-overlooked impacts on a community living downwind from the top-secret Manhattan Project testing site in southern New Mexico.

A Forgotten Legacy

While the film industry and critics praise “Oppenheimer,” a sense of frustration prevails among the residents of New Mexico’s Tularosa Basin, who continue to grapple with the consequences of the Manhattan Project. Tina Cordova, a cancer survivor and founder of the Tularosa Basin Downwinders Consortium, expresses their feelings, stating, “They invaded our lives and our lands and then they left,” referring to the scientists and military personnel who conducted secret experiments over 200 miles away from their community.

The Consortium, alongside organizations like the Union of Concerned Scientists, has been striving to raise awareness about the impact of the Manhattan Project on New Mexico’s population. Advocates emphasize the necessity of acknowledging the human cost of the Trinity Test, the first atomic blast, and other nuclear weapons activities that have affected countless lives in the state.

The Ongoing Struggle for Recognition

As film enthusiasts celebrate the drama and brilliance of “Oppenheimer,” New Mexico downwinders feel overlooked by both the U.S. government and movie producers. The federal government’s compensation program for radiation exposure still does not include these affected individuals. The government’s selection of the remote and flat Trinity Test Site, without warning residents in the surrounding areas, further added to the controversy.

Living off the land, the rural population in the Tularosa Basin had no idea that the fine ash settling on their homes and fields was a result of the world’s first atomic explosion.

The government initially attempted to cover up the incident, attributing the bright light and rumble to an explosion at a munitions dump. It was only after the U.S. dropped atomic bombs on Japan weeks later that New Mexico residents realized the magnitude of what they had witnessed.

Tracing the Fallout

According to the Manhattan Project National Historical Park, large amounts of radiation were released into the atmosphere during the Trinity Test, with fallout descending over a vast area. Some of the fallout reached as far as the Atlantic Ocean, but the greatest concentration settled approximately 30 miles from the test site.

Now I Am Become Death, the Destroyer of Worlds.

J. Robert Oppenheimer

The consequences of this catastrophic event have affected generations of New Mexicans, who still await recognition and justice for the harm caused by nuclear weapons.

A Tale of Contrasts: Los Alamos and the Legacy of Oppenheimer

As the film’s spotlight shines on the life of J. Robert Oppenheimer, a contrasting narrative unfolds in Los Alamos, more than 200 miles north of the Tularosa Basin. Los Alamos stands as a symbol of Oppenheimer’s legacy, housing one of the nation’s premier national laboratories and boasting the highest percentage of people with doctorate degrees in the U.S.

Oppenheimer’s influence is evident throughout Los Alamos, with a street bearing his name and an IPA named in his honor at a local brewery. The city embraces its scientific legacy, showcasing his handwritten notes and ID card in a museum exhibit. Los Alamos National Laboratory employees played a significant role in the film, contributing as extras and engaging in enlightening discussions during breaks.

The “Oppenheimer” Movie

Director Christopher Nolan’s perspective on the Trinity Test and its profound impact is evident in his approach to “Oppenheimer.” He has described the event as an extraordinary moment in human history and expressed his desire to immerse the audience in the pivotal moment when the button was pushed. Nolan’s dedication to bringing historical accuracy and emotional depth to the screen is evident as he draws inspiration from Kai Bird and Martin J. Sherwin’s Pulitzer Prize-winning book, “American Prometheus: The Triumph and Tragedy of J. Robert Oppenheimer.

For Nolan, Oppenheimer’s story is a potent blend of dreams and nightmares, capturing the complexity and consequences of the Manhattan Project. As the film reaches global audiences, it also offers a unique opportunity to raise awareness about the downwinders in New Mexico, whose lives were forever altered by the legacy of nuclear weapons testing.

The Oppenheimer Festival and Beyond

Los Alamos is determined to use the Oppenheimer Festival as an opportunity to educate visitors about the true stories behind the film’s events. The county’s “Project Oppenheimer” initiative, launched in early 2023, encompasses forums, documentaries, art installations, and exhibits that delve into the scientific contributions of the laboratory and the social implications of the Manhattan Project.

A special area during the festival will facilitate discussions about the movie, fostering a deeper understanding of the community’s history. The county aims to continue revisiting and discussing the legacy of the Manhattan Project, ensuring that the impact of this pivotal moment in history is never forgotten.

As “Oppenheimer” takes audiences on an emotional journey, it serves as a reminder that every historical event carries with it complex and multifaceted implications. The movie may celebrate the scientific achievements of the past, but it also illuminates the urgent need to recognize and address the human cost that persists to this day.


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