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

Has anybody any experience of capital gains in relation to the MDS forms?

Maggiethecat
Anyone with a child receiving an MDS or DaDa will be affected by these rules in my view. I am not an accountant, I should add! As you will be aware the government has decided that buy to let income will be treated as "gross" income for tax purposes. A "rebate" of 20% will then be applied to mortgage interest. The effect of this does not, as widely reported, only affect high rate taxpayers but also those who are "pushed into" the higher rate by reason of the assessment based on gross income. To take an exaggerated example.

Paul and Molly have no income other than their 10 buy to let properties which they rent out for £100,000/year. Their mortgage costs are £80,000/year.
Under the present rules, they pay no tax (they each make £10,000 profit, under the no tax threshold).
Under the new rules, they will be assessed for tax on £100,000. I can't work out exactly how much tax that is, but let's say £30,000. They then get a rebate of 20% of £80,000 - or £16,000. As you can see the change in rules pushes them from no tax to £14,000 tax a year.
Now, as a further consequence, if Paul and Molly's daughter is at an MDS school, they will currently pay £600/year. Under the new rules they will pay £14,000 because they are now assessed on a gross income of £100,000, albeit that they do not receive £100,000. The new rules, combined with the effect on MDS cost Paul and Molly £27,400/year.
This is how the new rules will operate in my view. For what it is worth, my view is that if Paul and Molly don't want to pay £14,000 they should sell some or all of the buy to lets!
There is historic precedence for the "unfairness" that might be perceived by this change. No changes to the MDS scheme were made when some families lost child benefit, even though their "incomes" might have dropped considerably as a result of those changes.
I think most people would be quite surprised to learn that MDS is assessed on income only. I suspect that there a few very wealthy individuals with kids on MDS schemes who have millions in the bank but only take a yearly "income" of £30,000 or so, therefore paying very little MDS fees.
What can you do? Sell, move to a limited company structure or pay higher fees!

These changes will also unwittingly push parents over the £90,000 cliff edge for Dada help.

"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." There is not a fixed pot of money so one person getting MDS funding doesn't stop somebody else at the school getting MDS funding. Different for a school bursary but that is a different subject here.

There is a reason many parents call it MADS and not MDS.
It isn't a bursary and not the same as any of the bursaries offered by schools.
People pass judgement and admit they know nothing about it at all.

You can be quite rich and not be able to pay the reduced fees because your income is tied to debt.

It is an assisted scheme based on income alone.
They are not interested in your outgoings at all and ask for no information.

There are allowances of over 2k for additional dependant children.

Utred,

I love my dd very much and it breaks my heart to wave her off and not know if I'll see her at the weekend or have to wait until the week after.
The pain I feel is indescribable.I still haven't settled after nearly a year.

You should be ashamed of your comment about not wanting your dd to board because you "like her".

What do you expect us to do, dissuade our children from an education they deserve.
I can't be so selfish as to stop her going for her dream.
I know I speak for many other parents in our situation.

Sorry Maggie, have read the thread now.
I know what you mean now.

Do you know you can contact the bursar and pay a different way if your earnings are going to be less than they were the previous year. I'm not sure whether your situation will come under this, but maybe worth a try.

I do wish they'd send the forms as I like to know I've started them in good time as I struggle with this stuff. The figures are fine as accountant helps with this, for me it's knowing where to put the details. I hate forms

maggie

I have the current notes for the forms I filled in for this year, haven't got next years yet
I don't understand what you mean though and our accountant helped with ours last year, so I'm probably no use.
Can you explain in simpler terms and I'll help if I can.
I'm not sure if we'll be affected or not.
We have another property but it's not mortgaged.
I'm sure I just had to declare the income.
I take it you are referring to MADS

For others
www.gov.uk/music-dance-scheme

I don't think the OP is trying to fleece anyone. The government provide this education & she applied based on their rules at the time.

There would be uproar if a new rule was brought in saying that all parents with a high income had to make a contribution towards their previously free state school. It's the goalposts being changed part way through a child's education that is the objection. Families who felt they were able to afford the contributions may now have to remove their children.

I'm not well off as it happens. But I wouldn't dream of thinking that My kids should be entitled to bursaries or the like to help with school fees - because they are not financially disadvantaged. My DD1 doesn't learn her principal study instrument at school, lessons aren't available. In fact though, lessons in school for the instruments they do offer aren't any cheaper than outside school ones. There's no discount and, in this LEA anyway, in school lessons are just private lessons on school premises. I do, as it happens, contribute monthly to a charity which supports disadvantaged kids access arts education - I already mentioned that up-thread. And I'm involved in other community music charities both where I live and somewhere else (that one is run by a friend of mine and somehow I agreed to help out years ago and I've never stopped). I also pay shit loads of tax including full NI contributions. If it's any of your business (it isn't). I am painfully aware of the barriers that disadvantaged kids face in accessing arts education - these are big enough without the additional barrier of well off/comfortable middle class people trying to dip into the funding pot which should be there for those who need it not those who just want it.

This is how you should prepare for the changes - accept that you will have to pay more. Do so with good grace. Realise that to complain is incredibly crass in the circumstances. And count your blessings.

Really tired suppose that these types of threads attract double jealousy. People are jealous that the OP child is gifted enough to be capable of getting a place at a specialist school. People are jealous that the OP is a higher rate tax payer and owns a BTL

My DD will be starting at the RCM in September so I'm not jealous that the OP's child is gifted - I reckon my state, non-specialist educated girl has done pretty alright for herself in the circumstances. We didn't even consider a specialist music school for her because we didn't want her to board (see, we quite like her really). I am also a higher rate tax payer although I do not own a BTL and have never inherited a penny - but that's by the by. I am involved with a charity that supports disadvantaged kids who want to pursue arts training. The thought that someone who is by any measure comfortably well off is able to fleece the system and get private school fees paid on the basis of 'giftedness' when so many kids are denied even basic music education in state schools makes me furious.

I don't think you can compare specialist music or dance schools to a normal private school. Specialist dance or music training does not exist in normal state schools. I would like to see more elitist schools where top sports people could train. Maybe there could truely elitist schools for the ultra gifted. (ie. capable of GCSE maths at the age of seven!)

I have seen ballet performance once in my life. The music and the ballet was beautiful. It was a subsidised ticket through school and maybe its sad that most normal people never get to see the ballet or a concert. I don't think such schemes exist anymore.

Imagine if a politician was sending their children to a private school and getting grants from the tax payer to pay for it. Their explanation was, "Its not my fault I have morgages on all my properties, so couldnt afford to otherwise".

Do you realy think that isnt a scandle?

Maybe the OP can't sell their home because it's in negative equity and they don't have the cash available to make up the short fall.

Also, if the OP owned shares the income from the shares would be included which is the dividend, ie income after expenses.

I cant even afford my first house and those with multiple properties get grants to send their kids to private school, this is a scandal.

I suppose that these types of threads attract double jealousy. People are jealous that the OP child is gifted enough to be capable of getting a place at a specialist school. People are jealous that the OP is a higher rate tax payer and owns a BTL.

Some people are forced to buy over priced shoe boxes to live in to be near their jobs. I don't know what the answer is. I think its fair to consider the equity in BTL, but i understand why the OP is feeling aggrieved. Maybe these BTLs are part of her pension planning.

Wow, first world problems!

Seriously, if you own multiple properties, it does seem a bit rich (pun intended) to expect to receive bursaries aimed at helping the disadvantaged. Whatever the letter of the rules may end up saying, it is surely completely against the spirit of the rules for people in the OP's fortunate position to be getting bursaries at all. Does the OP just not understand how most working people in many parts of the country now cannot afford to buy a home to live in, let alone rent out, at all, unless they have parental help?

Arguably, high housing costs should be taken into account when calculating bursaries. But this should refer to essential housing costs ie the costs of the mortgage or rent on the place one lives in, not the costs of debt on non-essential investments. Nowadays, wealth increasingly seems to depend not on income ie salary but on when/if one bought a house, particularly in the south east. It would therefore be reasonable for bursaries to give greater support to those with greater housing costs, ie those with smaller disposable incomes after housing costs, whatever their nominal incomes may be.

You can use a fully managed service if you can't be arsed or do not have time to manage a property. It's about 10%. You can use an accountant to do your tax return. Doing a tax return for a company is way more complex and expensive. The plumber has costs in getting to work. The plumber who charges £50 per hour may have days when he does not have work. If the plumber is sick he loses his income. A poorly landlord can use an agency to manage the property.

No one likes paying tax or school fees. Giving someone with a Btl a smaller bursery is fair.

The key things is that personally owned BTLs aren't regarded by UK tax law as a business - they're regarded as investment income, hence different rules apply. So a pointless and irrelevant argument comparing it to a plumber.

People shouldn't forget the benefits of this distinction. Such as only having to pay income tax on profits, and not class 2 and class 4 national insurance which a plumber would have to pay on top. Also, the reduced tax on the ultimate sale of the property benefitting from the annual CGT exemption and lower rate of CGT compared with income tax rates.

If you want the same "level playing field" as a plumber, then feel free to pay both tax and NIC on your profits, both the yearly profit from rental and the eventual profit on sale.

You can't have it both ways! There are pros and cons. You have to look at the whole picture over the lifetime of the "business".

As for transferring it to a limited company, yes you'd get full tax relief on interest, but don't forget the double-tax upon eventual sale, firstly corporation tax on the profit (no CGT annual exemption) and then income tax or CGT on withdrawing the money from the company.

Well my dad is a plumber! And his firm do loads of work for landlords!

Not as time consuming as being a plumber though! I think reallytired is making a good point.

That said, OP it sounds like you should go to the busar and make sure you are reading things right and filling in the form correctly. It sounds a bit thorny and you want to make sure that you aren't assuming the worst.

I'd dispute that. My parents run a construction firm & recently moved premises from a converted terrace house to s proper office.

They decided against renting the old property becsuse of the large amount of work involved in being a landlord. Repairs, maintenance, landlords gas safety certificates which are all costly & time consuming.