The View from No 50





November 2015

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925







Buy to let has become very popular in recent years.  It is easy to see why.  There is a finite supply of land and we have a growing population.  There is a plentiful supply of tenants - many young people cannot afford a deposit for a home of their own so they have no alternative but to rent.  


For investors, buy to let seems to offer the prospect of secure and rising income and capital growth.  The ‘problem’ is exacerbated by a wave of investment coming from the over 55’s who have recently gained access to their pension pots.


And the tax system encourages buy to let investment.


Would you expect to get tax relief for interest on a loan to buy stocks and shares?  Of course you wouldn’t.  Yet you get tax relief for interest on a loan to buy a property to let.


Do you get tax relief for the interest you pay on a loan to buy a home of your own?  No, you don’t.  But you do get tax relief on a loan to buy a property to let.


Is it any wonder much of the nation’s housing stock now rests in the ownership of buy to let investors?


Whether motivated by the desire to restore a fairer balance between would-be home owners on the one hand and investors on the other or by a realisation that here lies an untapped well of tax revenue, the chancellor has decided to partially withdraw the benefit of loan interest relief for buy to let investors.


The new measures, which will be phased in over the lifetime of this parliament, do not apply to landlords of non-domestic property.  Nor do they apply to furnished holiday lets.


Naturally those with highly geared buy to let operations will be most affected by the changes.


Here is an illustration.




Abbey and Ben are married and run a sizeable buy to let operation.


                                       2016-17      2020-21


                                            £000           £000


Gross rents                            600             600

Repairs and other costs        -200            -200

Interest on loans                  -350            -350


Net profit                                 50               50


Add back interest on loans                       350


Personal allowances x 2           22                  -


Taxable income                        28             400


Tax                                          5.6          147.8

Tax relief for interest

restricted to basic rate

£350,000 x 20%                                      70.0


Net tax on rental income        5.6            77.8


On a commercial return of £50,000, Abbey and Ben have a tax bill of £77,800 in 2020-21.




You have to be pretty sure you are going to make a decent capital gain on the eventual sale of your investment if you are going to endure an annual tax hit like that.


It will be interesting to see how landlords react to this change.


Some will react by increasing the rents they charge.  But will that cover the deficit?  Some will react by selling up.   Will the increase in supply be snapped up by cash rich landlords or by owner occupiers?


One thing is certain.  By the end of the parliament the chancellor will be able to say he has removed a relief which, in these fiscally challenging times, was increasingly hard to justify.






Here is a tax case which supports one of my golden rules.  That rule is – if you are in business, keep proof of where all your incoming money comes from.  That applies not just to money banked in a business account but to money banked anywhere.


Mr Shakeel is the proprietor of a restaurant.  During the course of an enquiry into his 2008/09 tax return HMRC asked for a proof that certain cheque deposits were capital introduced, as contended by Mr Shakeel.


Mr Shakeel stated the deposits came from loans from his brothers.  But no evidence, such as the brothers’ bank statements, was provided.  Worse still, the actual receipts did not correspond with the brothers’ affidavits.


Mr Shakeel also tried to argue that the bankings originated from an insurance receipt.  He later changed his story and claimed they came from a loan from a customer.


HMRC contended the unidentified bankings were sales and assessed Mr Shakeel accordingly.


The tribunal noted that it had the power to reduce an assessment if it appeared that the taxpayer had been overcharged.  However, the onus is on the taxpayer to show that the assessment is wrong.  It is the taxpayer who knows and the taxpayer who is in a position (or, if not in a position, who certainly should be in a position) to provide the right answer.  It is the duty of every individual taxpayer to make his own return and, if challenged, to support the return he has made, or, if that return cannot be supported, to come completely clean; and if he gives no evidence whatsoever he cannot be surprised if he is finally lumbered with more than he has in fact received.


The onus was on Mr Shakeel to show that the deposits were not unrecorded sales and he failed to do so. 


HMRC’s assessment was upheld and their penalty charge approved.


Our Advice:  Keep proof of where all incoming money comes from.  This applies not just to business accounts but all accounts.  If HMRC opens an enquiry into your return you have nothing to fear.





Sneaking in under the radar at clause 28 of the second Finance Bill of 2015 is the provision to allow members of local authorities an exemption from tax on payments made to them for travelling between home and their permanent workplace.


Can the rest of us have some of that please?





Neil Garrod is a barrister.  He was prepared to file his VAT returns online but he refused to tick a box on the government gateway to confirm he had read HMRC’s terms and conditions for filing online.  He submitted paper returns instead.  HMRC imposed a penalty for not filing online.


Mr Garrod appealed, claiming HMRC had no legal basis for requiring him to read the terms and conditions and therefore the penalty was unlawful.


The tribunal judge agreed.  He said nothing in the relevant legislation concerning online filing envisaged that HMRC would impose a requirement on the taxpayer to say he had read conditions HMRC chose to present as binding.


The taxpayer’s appeal was allowed.


And the moral of the story is?  Never pick a fight with a barrister!





To find out what his staff think about him, Richard Branson decides to go undercover in one of his workplaces.


He gets a relatively menial job and sets about questioning his unwitting staff.


“What do you think of Richard Branson?” he asks the first colleague he meets.


The young man pauses, takes a glance over each shoulder, leans closely in and asks the new starter to follow him.


They sneak through the back room and out into the car park.


When he is a good distance from the building the young man crouches down between two cars and beckons his new colleague to join him.


With his hand placed carefully over his mouth the young man whispers, “Personally, I don’t mind him.”

Copyright:  K P Bonney & Co LLP 2015.  All rights reserved.  No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer:  The publishers have taken all due care in the preparation of this publication.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.

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