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

[maggiethecat]

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?

Actually the aim of the scheme is that children of all incomes should be able to access the training on a sliding scale according to parental income - as it happens there is a middle ground whereby middle earners are the ones who struggle to pay their contribution - the ones at the very bottom & very top of the scale don't have such a problem.

It's not fair if they change the rules part way through a child's education. On an income of £30000 an employed person may be asked to pay £1,800 per year but on an income of £50,000 that shoots up to £5,000 & if several thousand of that income isn't actually take home income it makes a heck of a difference.

On a family income of £80,000 you would be asked to pay around £10k per year.

The new rules are backwards because a sole practioner, who was say a plumber, would have their income after expenses considered rather than gross income.

I would be calling the bursar and asking what their policy is. I doubt you are the only one in this position. FWIW if you are not making much money on your 2nd property it might be an idea to sell it and invest the money through a retirement account. Both you and your OH can stash cash in there and invest in lower overhead investments. If you like having leverage trade on margin. As someone who put their rental properties in a company formation (I did it offshore as I live abroad and I qualify for non-Dom status as born outside of the UK) I would question if BTL is the right sort of investment for a UK citizen subject to these new taxes who doesn't run their BTL as their main business.

It's not into the bursar want2be. All the bursar will do is forward the filled in income forms to the MDS people who will then pay the school the government contribution. The school will bill the OP the remainder.

It's a bit like it's not up to a university how much student loan/tuition fees contribution a student gets.

I may be wrong about the savings if it's over a certain level.

Uhtred we could extrapolate to any number of situations. Free school lunches, trips, music education at state schools - let those who are well off pay for these and free up funds for those less able to pay. One step further - should the wealthy be able to have their children educated for free? - let them go to state school for all sorts of reasons, but let them pay.
If the rules are that assets are used in the calculations then I'm prepared to decide what her course will be in that event. Until that time I see no reason for us to differentially treated.

Hadn't seen that the post had moved on past page 1.
Supermum, that is my point - you would not consider the plumber's gross income.

I have no issue with paying based on actual income - just not gross income.

Balletgirl - the MDS will have to clarify the position - I hardly think that I am the only one in this position.

A plumber income is earned, where as rental income is unearned. Owning. Btl is akin to owning shares. You don't have to work particularly hard to get the money.compared with the plumber. I don't think it's unreasonable to consider assets over a certain value.

really I think what you mean is rental income is passive income? Unearned income is deferred revenue and as taxes are done on a cash basis you shouldn't be taxed on unearned income that you would see on the financials.

Personally, if you only have to pay £5k on an income of £50k I think yore onto a winner. We pay £9k on an income of £42k. misses point

Rental income is similar to a shares dividend. It is not earned in the sense that you do not to do actual work to get paid. In the past those with lots of money used to buy shares to create income rather than property. Buying shares helps companies expand, but there is an element of risk. BTL has become popular because property tends to be less volitile.

If someone borrowed 100k to invest in shares would they be allowed to offset the interest if they were an individual?

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.

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.

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

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.

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.

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.

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.

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.

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.

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?

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.

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.

This has become a very active conversation - thank you all for your input!
Reallytired, can I borrow your username

Few things - dd was at a private school before but is very musically able and wanted to go to music school. We enquired about fee calculations before accepting place, making it clear that if mortgage interest were not deducted fees would be prohibitive ie we could pay based on profit (actual income earned rather than gross). We accepted place when confirmed this would be method of calculation.
I am not averse to paying fees but my beef is with this change in calculation. What goes into the family pot is the income after the expenses.
If assets are to be considered that is another matter but where do we start with that? Many Londoners are sitting on considerable equity in their homes - although they may be middle income earners with low fees should they release equity to pay fees? Or would these rules only apply to those with multiple properties, some of who may not have as much equity depending on various factors including location, when they bought etc.

As Balletgirl said the scheme is to allow talented children to get this specialist education regardless of family income. We pay considerable fees and will continue to do so provided they are fairly applied.

Uhtred we cross posted.
We are fleecing the system are we? When we have been very upfront with our earnings and have paid what has been asked of us? The intention is to make enquiries in advance of the new rules coming into effect so that we know how to prepare for changes.
i suppose we should have not adhered to the existing rules which are income based and sold assets to pay full fees?

Did you, being well off, consider making a fee contribution to your girls state school so that children denied basic music education etc might be able to avail themselves?