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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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Time for a tiki hut? As shops discount summer stock, there’s a garden bar for every budget

Despite the washout weather, garden bars have been this summer’s hot home trend and it’s not too late to join the party.

Online searches for outdoor bars rose by a whopping 358 per cent in June, compared to January, according to Toolstation, while budget homeware shop The Range saw a massive 60 per cent rise in online shoppers checking out its al fresco drinking options this summer.

What’s more, being late to the garden bar party isn’t necessarily a bad thing. Retailers are discounting their summer stock. So before you buy directly from the manufacturer, shop around multiple stockists to find the best discount available.

So, if you fancy pulling a pint from your own backyard pub or shaking a cocktail in the shade of a tiki hut, there’s a garden bar to suit every space and budget.

Join the party: A tiki hut-style garden bar is perfect for friends-round-Friday or a family do

Join the party: A tiki hut-style garden bar is perfect for friends-round-Friday or a family do

Jenny Davis from Forest Garden, suppliers of garden timber goods, says before heading to the garden centre, consider the space you have available first.

‘Smaller areas might seem overwhelmed with the addition of a standalone bar, which is where a fold-down wall-bar comes in handy,’ she said. 

‘A wall-mounted fold-down bar means the smallest of gardens, even balconies, can become a party haven.’ Forest Garden’s fold-down bar costs £189.99 and comes with a fold-away serving table and shelves to store bottles and glasses. 

Online retailer A Place For Everything stocks a more compact wall‑mounted bar at £67.50.

For free-standing bars to fit a modest back garden for less than £400, specialists Dunster offers the Utopia Gable Gazebo Bar at £384.99, which is 2.22m wide and 1.20m deep. 

The Range sells a tiki-style bar in its Marbella collection for £239.99, complete with straw roof and two bar stools, which is half the size.

To build your bar atmosphere, it could be placed in front of a high wall or sturdy fence, giving you the option to put shelves up for your spirits and accessories.

 When the winter months draw in, replace the fridge with a lined box for blankets and cushions to keep you cosy, and install a fire pit or outdoor heater to stay warm while you entertain outdoors

Interior designer Siobhan Murphy recommends creating an eye-catching rainbow effect and to group together the colours of your spirits, mixers and glassware. 

She says: ‘Invite nature to your garden bar by installing hanging planters, or create a vertical garden backdrop using wooden pallets for an organic feel. 

Oversized potted plants can add a touch of luxury, and unique planters like repurposed teapots will amp up the quirkiness.’

If you’re looking for an enclosed bartending space, you’ll have to spend a bit more. But it does mean you can use your bar for storage in the winter by shutting up the serving hatches. 

Forest Garden’s Shiplap Pent Garden Bar at £729.99, or £1,039.99 with installation, is weatherproof and lockable so you can keep a fridge to store spirits in overnight.

When the winter months draw in, replace the fridge with a lined box for blankets and cushions to keep you cosy, and install a fire pit or outdoor heater, at a safe distance, to stay warm while you entertain outdoors.

Garden bars are designed with DIY-ers in mind. But if you’re not handy with a hammer, many companies offer an installation service costing £200 to £300 extra.

Cheers! Garden bars don't necessarily have to be put away for the winter, as some are covered and can be warmed up with a heater (at a safe distance) or blankets

Cheers! Garden bars don’t necessarily have to be put away for the winter, as some are covered and can be warmed up with a heater (at a safe distance) or blankets

When your bar arrives, it will be unpainted and without any of the accessories, lights or additional wall fittings shown in the adverts. You will, however, have a blank canvas on which to create your own unique bar vibe.

Siobhan suggests creating a backdrop feature with nature-inspired outdoor wallpaper, and creating an eclectic counter-top using patterned tile mosaics or faux marble vinyl.

If you’re looking for a pub experience in your back garden and you have a budget of close to £4,000, Dunster’s Severn Pub Shed Log Cabin could be right up your street, if you have the space that is. At 5m wide and 3m deep, it’s no small addition to your outside space.

Only the structure and bar are included in the £3,959.98 price — you’d have to buy your own pub sign, seating and beer pump. But there’s space to hang a TV, room for a heater and doors to shut out the chill.

Those who want to entertain their friends in the garden all-year-round could push the boat out with Cuckoo-land’s Ornate Garden Off Set Oval House Garden Pod for £18,995. 

It seats ten, has a built-in heater, Bluetooth soundbar and a sideboard, which can be used as a bar. Installation is included, but you’ll need a level, hard-standing base measuring at least 3.25m by 1.7m for it to be built on.

Although most garden bars are designed so that you don’t need planning permission, it’s always wise to check the height of the bar at its highest point against current regulations. Buildings over 2.5m high, at the tip of the eaves, may require planning permission.

Check with your local council if you are unsure.

Savings of the week… quirky lamps 

Light side: Graham and Green's Hetty Hare table lamp - reduced from £165 to £89.10 (grahamandgreen.co.uk)

Light side: Graham and Green’s Hetty Hare table lamp – reduced from £165 to £89.10 (grahamandgreen.co.uk)

The nights are drawing in. If this makes you feel a little melancholic, a quirky lamp that brings joy when you switch it on could be the answer.

Homeware companies seem to have recognised the allure of this type of lighting, and you can you find designs in every shape and hue at reduced prices.

If zingy colour raises your mood, Not On The High Street has an Anglepoise-style desk lamp in acid yellow, reduced from £75 to £52.50.

The retailer offers lamps in the shape of birds and bears. But the range also includes a white triceratops lamp which was £19.95 and is now £13.97 — for those who find dinosaurs cute rather than fearsome.

Graham and Green has a fun silver Hetty Hare table lamp with large floppy ears that has been reduced from £165 to £89.10.

Or enjoy a warm glow from the edgy Wayfair lustrous copper base and black shade Trystan lamp with 30 per cent off at £62.99.

ANNE ASHWORTH

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Assessing The Potential of The India-Middle East-Europe Economic Corridor (IMEC) Against China’s Belt And Road Initiative (BRI)

(THE VOICE OF EU) – In a recent address, Indian Prime Minister Narendra Modi hailed the newly unveiled India-Middle East-Europe Economic Corridor (IMEC) as a transformative force poised to shape global trade for centuries. While the IMEC undoubtedly presents a significant development, it’s vital to scrutinize its potential impact compared to China’s ambitious Belt and Road Initiative (BRI).

The IMEC was jointly announced by US President Joe Biden and Saudi Crown Prince Mohammed bin Salman at the G20 summit in Delhi. Designed to fortify transportation and communication networks between Europe and Asia via rail and shipping routes, the project not only holds regional promise but also reflects a strategic move by the US in its geopolitical interests, particularly concerning China.

However, the IMEC faces a formidable contender in the form of China’s BRI, which celebrated its tenth anniversary this year.

Despite facing some headwinds, including a slowdown in lending due to China’s economic deceleration and concerns raised by nations like Italy, Sri Lanka, and Zambia regarding debt sustainability, the BRI remains a monumental global undertaking.

With investments surpassing a staggering $1 trillion and over 150 partner countries, the BRI has transformed from a regional initiative to a near-global endeavor.

Comparatively, the IMEC may not immediately match the scale or ambition of the BRI. While the US, Japan, and the G7 nations have introduced similar initiatives like the Global Gateway and Partnership for Global Infrastructure and Investment, none have achieved the expansive reach or influence of the BRI.

The emergence of these projects over the past five years, however, demonstrates the BRI’s pivotal role as a catalyst for global economic growth.

Viewing the IMEC solely through the lens of opposition to the BRI may not provide a comprehensive understanding of its potential.

Instead, the IMEC contributes to a broader trend of transactional partnerships, where countries engage with multiple collaborators simultaneously, underscoring the complex and interconnected nature of global trade relations.

Yet, realizing the IMEC’s aspirations demands meticulous planning and execution. A comprehensive action plan is expected within the next 60 days, outlining key governmental agencies responsible for investments, allocated capital, and implementation timelines.

Establishing a streamlined customs and trade infrastructure is equally critical to facilitate seamless transit, a challenge highlighted by the Trans-Eurasian railway’s 30-country passage through Kazakhstan.

Navigating geopolitical complexities between partner countries, particularly the US, Israel, and Saudi Arabia, poses another potential hurdle.

Ensuring these nations maintain a unified strategic vision amid differing priorities and interests requires careful diplomatic coordination.

Furthermore, the IMEC will compete directly with the Suez Canal, a well-established and cost-effective maritime route.

While the IMEC may enhance relations with the UAE and Saudi Arabia, it could potentially strain ties with Egypt, prompting critical assessments of the project’s economic viability.

Beyond trade and economics, the IMEC ambitiously aims to incorporate diverse sectors, from electricity grids to cybersecurity.

This multi-dimensional approach aligns with discussions held in security forums like the Quad and, if realized, could significantly contribute to a safer, more sustainable global landscape.

As we contemplate the potential of the IMEC, it is with hope that the lofty ambitions outlined in New Delhi will culminate in a tangible and positive transformation for the world.


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Copyright Dispute: DC Comics And ‘Fables’ Author Clash over Ownership, Author Aims for Public Domain

A detail from a 'Fables' cartoon by Bill Willingham. Image courtesy of the publisher ECC.
A detail from a ‘Fables’ cartoon by Bill Willingham. Image courtesy of the publisher ECC.

This is a story full of fairy tales. In some ways, it even resembles one. And yet it also proves that, in the real world, things rarely end happily ever after. A few days ago, Bill Willingham, the father of the celebrated Fables comic book series, announced that he was sending his most cherished work to the public domain, that is, to everyone. That’s only fair, since that is also where he got the main characters of his stories, from Snow White to the Wolf, from Pinocchio to Prince Charming, who were then relocated to modern New York. In this tale, the hero has long-faced mistreatment at the hands of the villains, DC Comics, the owner of Vertigo, which publishes the work in the United States, and its executives.

“If I couldn’t prevent Fables from falling into bad hands, at least this is a way I can arrange that it also falls into many good hands,” Willingham wrote in an online post in which he decried the label’s repeated attempts to take over his creations and opposed them with this final extreme remedy. But the company responded that it considers itself to be the true owner of the series.

In a statement published by the specialized media IGN, the company threatened to take “necessary action” to defend its rights. Thus, the end of the dispute is uncertain. But it is unlikely that everyone will end up happily ever after.

In the meantime, in a new post, Willingham celebrated the massive support he received. In fact, for the moment, he has declined all interview requests — he did not respond to this newspaper’s request, nor did the publisher — arguing that he preferred to spend the next few days working on new artistic projects. Meanwhile, the dispute continues.

Fables is one of the most celebrated graphic novels of the last 20 years, and it has spawned spin-offs and a video game adaptation (The Wolf Among Us).

This situation also touches on a key issue, namely, the intellectual property rights of characters and works, especially in a sector where, for decades, dozens of cartoonists and screenwriters have accused comic book giants Marvel and DC of pressuring them to cede their ideas and accept commissioned contracts.

Willingham sums it up as a policy aimed to make creators sign “work for hire” agreements and crush them. All of this makes a gesture that was already intended to make a splash even more resonant.

A detail from a ‘Fables’ cartoon by Bill Willingham. Image provided by ECC
A detail from a ‘Fables’ cartoon by Bill Willingham. Image provided by ECC.

Indeed, the battle over intellectual property is as old as contemporary comics: the copyrights for Superman, Batman and The Fantastic Four all have unresolved disputes and complaints from Jerry Siegel, Bill Finger and Jack Kirby over the contemptuous treatment they suffered. And heavyweight Alan Moore has been lamenting for years that DC took away his ownership of famous works like Watchmen.

Along with prestige and principles, tens of millions of dollars are at stake, especially now that the film industry has become interested in comics.

“When you sign a contract with DC, your responsibilities to them are carved in stone, where their responsibilities to you are treated as “helpful suggestions that we’ll try to accommodate when we can, but we’re serious adults, doing serious business and we can’t always take the time to indulge the needs of these children who work for us” the Fables author wrote on his blog. Following the impact of his original message, Willingham posted two other texts. He maintains that he had thought about sending his work into the public domain when he passed away, but that “certain events” have changed his plans: among them, he lists the changes in management and attitude at the top of the publishing company; the multiple breaches of obligations such as consultations about covers, artists for new plots and adaptations; DC’s forgetfulness when it came to pay, which forced him to demand invoices of up to $30,000; the suspicious frequency with which the publisher attributed it to “slipping through the cracks” (to such an extent that the author insisted that they stop using that expression); and the time and chances he gave them to respect the pact, renegotiate it or even break it and consensually separate.

A detail from the cover of the first volume of Bill Willingham's comprehensive collection of 'Fables.'
A detail from the cover of the first volume of Bill Willingham’s comprehensive collection of ‘Fables’.

“Shortly after creating Fables, I entered into a publishing agreement with DC Comics. In that agreement, while I continued to own the property, DC would have exclusive rights to publish Fables comics, and then later that agreement was expanded to give DC exclusive rights to exploit the property in other ways, including movies and TV.

DC paid me a fair price for these rights (fair at the time), and as long as they behaved ethically and above-board, and conducted themselves as if this were a partnership, all was more or less well. But DC doesn’t seem to be capable of acting fairly and above-board.

In fact, they treated this agreement (as I suppose I should have known they would) as if they were the boss and I, their servant. In time that got worse, as they later reinterpreted our contracts to assume they owned Fables outright,” Willingham laments. Hence, he concluded that “you can’t reason with the unreasonable.”

Having ruled out a lawsuit as too expensive and time-consuming at 67 years of age, he found a more creative solution: if they prevented him from owning his works and benefiting from them as he was entitled to do, he would not let the publisher do so either. Or, at least, everyone could use the comics as they wished. But the label was quick to clarify in its statement to IGN: “The Fables comic books and graphic novels [are] published by DC, and are not in the public domain”.

For his part, Willingham promises to continue fighting for all the conditions of his still-in-force contract that he considers DC to have violated, as well as for the last installments of the series, the final script of which he delivered two years ago.

There will be additional chapters in this dispute, as well as in many other ones like it: in 2024, the historic first image of Mickey Mouse, the one that starred in the 1928 short Steamboat Willie, enters the public domain in the U.S. and other countries. Copyright in the U.S. lasts for 95 years, and math is an exact science.

Therefore, in a few years, King Kong, Superman and Popeye will meet the same fate. But The New York Times has wondered how the “notoriously litigious” Disney will react and how far it will go to fight in court. And who would dare to freely use all these works for fear of a million-dollar lawsuit? The same question surrounds DC and similar companies. Because in the real world, fairy tales are rare. Or they end up in court.


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