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Something about the tax position of letting mortgaged property. EDIT: I had misremembered. Landlords can still get a tax deduction for mortgage interest, but o

Something about the tax position of letting mortgaged property. EDIT: I had misremembered. Landlords can still get a tax deduction for mortgage interest, but only at the 20% rate, not at their marginal tax rate. For most landlords with mortgages, this probably halves the tax credit. In the UK, if a private landlord receives £1000 in rent, and pays £800 in mortgage interest, they pay tax on the whole £1000, not just on the money they made. There are reasonable arguments on both sides: A) Why should a landlord be able to deduct mortgage interest from their income, for tax purposes, when owner-occupiers cannot? B) Why should a landlord be unable to deduct business expenses from revenue before calculating taxable profit, when all other businesses can?

thraxil 2y ago
Wouldn't a reasonable resolution to the conflict between A and B be to instead allow owner-occupiers to deduct mortgage interest from their income for tax purposes?
- rahimnathwani 2y ago
  That just shifts the perceived inequity to: C) Why can homeowners deduct mortgage interest costs, whilst renters cannot deduct rent costs?
lkdfjlkdfjlg 2y ago
> Why should a landlord be unable to deduct business expenses from revenue before calculating taxable profit, when all other businesses can? I think you nailed it. This is effectively the government saying "renting is not a business". Think about it. The ability to "deduct expenses" is one of the characteristics of businesses. Individuals also can't deduct rent, food etc from their taxes.
- rahimnathwani 2y ago
  This is effectively the government saying "renting is not a business". Yes, but only if you're an individual landlord. If you register a company and buy the property through that, the normal rules apply and all interest expense is deductible. Of course, the mortgage might be harder to get or more expensive, as it's no longer secured on an individual's assets and future income.
  - globular-toast 2y ago
    Isn't a mortgage secured on the asset itself (the house)?
    - rahimnathwani 2y ago
      In the USA, most mortgages are non-recourse loans, i.e. if the bank forecloses and sells the property for less than the outstanding loan balance, they can't go after the borrower for the difference. In the UK, the borrower is on the hook for the full amount of the loan.
- tmnvix 2y ago
  This just makes it easier for investors to outbid homebuyers. If you allow deductions on interest payments, why not for occupiers too? Of course that could open up a whole can of worms and potential loopholes for avoiding income taxes.

thraxil 2y ago

Wouldn't a reasonable resolution to the conflict between A and B be to instead allow owner-occupiers to deduct mortgage interest from their income for tax purposes?

rahimnathwani 2y ago
That just shifts the perceived inequity to: C) Why can homeowners deduct mortgage interest costs, whilst renters cannot deduct rent costs?

lkdfjlkdfjlg 2y ago

> Why should a landlord be unable to deduct business expenses from revenue before calculating taxable profit, when all other businesses can? I think you nailed it. This is effectively the government saying "renting is not a business". Think about it. The ability to "deduct expenses" is one of the characteristics of businesses. Individuals also can't deduct rent, food etc from their taxes.

rahimnathwani 2y ago
This is effectively the government saying "renting is not a business". Yes, but only if you're an individual landlord. If you register a company and buy the property through that, the normal rules apply and all interest expense is deductible. Of course, the mortgage might be harder to get or more expensive, as it's no longer secured on an individual's assets and future income.
- globular-toast 2y ago
  Isn't a mortgage secured on the asset itself (the house)?
  - rahimnathwani 2y ago
    In the USA, most mortgages are non-recourse loans, i.e. if the bank forecloses and sells the property for less than the outstanding loan balance, they can't go after the borrower for the difference. In the UK, the borrower is on the hook for the full amount of the loan.
tmnvix 2y ago
This just makes it easier for investors to outbid homebuyers. If you allow deductions on interest payments, why not for occupiers too? Of course that could open up a whole can of worms and potential loopholes for avoiding income taxes.