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Specialist Music School - fee contributions affected by new rules on rental income tax

(62 Posts)
maggiethecat Sat 14-May-16 23:58:20

Although new rules start to take effect from next tax year and on sliding basis I am concerned that parental contributions at my daughter's school is calculated based on income as per tax returns. If property income is used to calculate fees without consideration of mortgage expenses we will not be able to afford fees.
Although we see the intentions of the govt in implementing these rules surely it cannot be right to apply the same principles in assessing family income to determine fees.
Is anyone with children at specialist music/dance/drama school affected by these rules?

Balletgirlmum Sun 15-May-16 00:06:01

Dd isn't on an MDS so I'm afraid I don't know much about this.

Is the issue that you will be assessed on rental turnover rather than profit?

Tiggeryoubastard Sun 15-May-16 00:08:55

Why not? Whether you're paying mortgage interest on it or not, it's income.

maggiethecat Sun 15-May-16 00:18:10

Ballet that is the issue - calculations at the moment are done on profit which makes sense.
Triggery, I could earn £100 and pay out £90 in mortgage interest - £100 is not therefore going to my family income - why should my daughter's fees be calculated on £100?

maggiethecat Sun 15-May-16 00:20:12

Tigger even

Balletgirlmum Sun 15-May-16 00:22:52

Would the answer be to perhaps set up a limited property rental company maybe with separate accounts. (Don't know whether this would work within the rules)

ReallyTired Sun 15-May-16 00:25:46

Surely if you have a large asset like a second property it's not unreasonable to expect you to sell it to pay the fees or at least extend the mortgage to release equity. I assume that savings are taken into account when awarding a bursery.

Tax relief is not disappearing it is being reduced from 40% to 20% for high earners. If you rent a flat for 10k (net) and have 10k mortgage you will pay an additional 2k a year in tax as a worse senario. Most landlords have considerably smaller mortgages as a lender would insist on 40% ltv and rent covering 125% of mortgage. The additional tax is not as much as you think. If both parents are high tax earners then the bursery is likely to be limited anyway.

maggiethecat Sun 15-May-16 00:26:42

Not so easy - properties are mortgaged so to transfer them into company not straightforward plus I believe there are tax implications for the transfers.

Balletgirlmum Sun 15-May-16 00:28:18

As far as I am aware you are assessed on your income, not assets. I'm not sure whether savings are taken into account.

maggiethecat Sun 15-May-16 00:35:15

Reallytired, savings are not considered. By your reasoning people with plenty of equity in their homes could be asked to release equity to pay fees.

I would have an additional £k in tax but also an additional £1k in fees (about 10%) of income.

maggiethecat Sun 15-May-16 00:36:17

additional £2k in tax....

ReallyTired Sun 15-May-16 00:37:14

If you have properties plural then surely the answer is to sell some and clear the debts and have a far lower mortgage on your remaining properties.

Balletgirlmum Sun 15-May-16 00:41:04

That would be the equivalent of asking someone to leave their job because then they could sell their car.

maggiethecat Sun 15-May-16 00:45:10

There are all sorts of considerations for our general tax position but I am addressing specifically the issue of fee calculation.
I accept that the government has made these changes for various political and social reasons and I will pay my taxes accordingly. What I have difficulty with is how this affects fee calculations - it cannot be right to now suddenly not offset mortgage interest against income when determining family income. And particularly for those who are already in the system.

ReallyTired Sun 15-May-16 00:45:33

"Reallytired, savings are not considered. By your reasoning people with plenty of equity in their homes could be asked to release equity to pay fees."

There is a difference between selling your principle residence and a second home. If you sell your principle home you still need to find somewhere to live. However a buy to let is an investment that can be realised without making yourself homeless. It's no different to selling shares.

I suggest you talk to an accountant about legal ways of minimising tax. If one partner is a basic rate tax payer then it would make sense to put 90% ownership in that person's name.

ReallyTired Sun 15-May-16 00:46:30

It's bed time. I meant principal residence.

Balletgirlmum Sun 15-May-16 00:48:04

I agree Maggie. And it has to be taken into consideration that children who apply to these schools are encouraged to apply on the basis that places will be awarded
& funding offered on the basis of talent only. The funding is meant to make the schools accessible to everyone

Balletgirlmum Sun 15-May-16 00:49:27

It's nothing to do with tax really tired. And unless the op split up with her partner transferring a property would make no difference as fee calculations are fine on family income.

maggiethecat Sun 15-May-16 00:51:27

Reallytired, I'm tired and so are you (but thanks for taking the time).

You would not have to sell your principal residence if you had lots of equity - you'd just have to release some of it - if we are going to start to look at assets.

The issue at hand is not minimising tax (altho this will be looked at) - it is about fee calculation and the criteria being used to calculate fees.

maggiethecat Sun 15-May-16 00:57:51

Ballet I do feel agrieved - it feels a bit like "you've got these properties, what are you complaining about?"
The fact is that assets are not considered and I know there are many who are asset rich who perhaps do not pay as much fees as we do but that is the position.
However, it must be unjust to base figures on bald income and not consider what is spent in earning that.

ReallyTired Sun 15-May-16 01:10:16

I can see your point that it's unfair to penalise someone for owning properties if they aren't penalised for having shares or savings.

Are you feeling sore about additional tax and fees or us really a case you cannot afford the extra 2k per year? I don't know how many years your child would be at ballet school, but is remortgaging one of properties to release a bit if equity and get a better mortgage deal an option? If your tax increase makes having a btl unaffordable don't you think you are wise to look at selling before interest rates return to normal levels.

As a first timer buyer I paid 8.6% on my first mortgage many moons ago and that was an introductory rate. Could you cope with a mortgage rate of 8.6%. It could be worse and residential mortgages are usually lower.

maggiethecat Sun 15-May-16 08:13:41

The issue for me is for fees to be calculated on a fair and reasonable basis. She has another 5 years of school and while we could sell an asset to fund her this should not be required just because of the method of determining "income" i.e. on turnover rather than profit.

If I were a company and the criteria for fees meant that they could look at the company's "income" would they just consider turnover and disregard the expenses of running the business?

UhtredRagnorsson Sun 15-May-16 14:20:19

This is nothing to do with tax other than tangentially. The school can offer funding as it wishes. IMO it's absolutely right that asset rich people should find that their happy situation impacts on eligibility for funding. The funding is there to help the disadvantaged not the asset rich. AFAIA 'ordinary' private schools can and do require parents to release equity in their homes if they have shit loads but are declaring a low income. It's all just another dodge - asset rich people say 'oh but my income is so low, it's so unfair' while hoping nobody notices that actually their true financial position is far better than people with higher incomes but few (or no) assets. It's just another way of trying to entrench privilege - pretending that to be asset rich isn't being rich per se. Well - it is. Capital is almost always more secure than income. Not least because when those situations that impact capital (recession, house prices crash) happen incomes get hammered too and while assets can recover (see the last turn of the merrygoround) incomes sometimes never do.

Sell one of your properties. Realise the unearned increase in capital you will almost certainly have waiting for you. Pay the fees. Let someone who needs the funding have the funding.

UhtredRagnorsson Sun 15-May-16 14:21:46

And yes - if the stated basis for assessing a company was income then they would assess it on income, not on profit. Because they are two different terms with two different meanings. If they meant profit they would say profit. If they say income then they mean income.

Balletgirlmum Sun 15-May-16 14:31:43

Uhtred - the schools do not make the rules - the government do. This is money given to a small number of centres of excellence (& it also affects part time after school CAT - so that children who are talented in music or dance can access specialist training.

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