FTSE 100
Dow Jones

Thursday, 29 October 2009

Westminster house swap: N/S, no pets

The poor grasp of finance demonstrated by many MP's continues to astound me. They are currently whingeing about the upcoming Kelly report, which aaccording to leaks, will prohibit MPs from claiming interest expense on mortgages to cover the cost of second homes but they will be entitled to claim for the cost of renting a property. Some eagle-eyed observers have pointed out that the rental value of Westminster flats is higher than the mortgage interest cost at present, so they claim that this is not necessarily a good idea.

So we have hundreds of MPs who own flats in Westminster, who are moaning that they may have to sell their flats and lease another. Well not necessarily, they could always lease out their flats, perhaps to another MP and lease in a second flat. There may be plenty of flats available for leasing, probably from other MPs. The income from the flat they lease out covers the interest on the mortgage and the cost of the flat they lease in is reimbursed by the government.

OK, so that still requires MPs to move house, which some may find inconvenient, so why not resort to the old financing trick of the lease and leaseback, a mainstay of many tax and accounting wheezes. The MP owns the the freehold or long lease on a flat which he subleases to a third party, who then leases it back, maybe for a shorter term but perhaps not, it depends what the rules say. The third party leases the flat back to the MP. The MP receives enough rent under the head lease to make the mortgage payments, and the sub-lease payments, which will cover the head lease payments and a profit to the third party, will be reimbursed by the Fees Office.

1 comment:

Demetrius said...

Man In A Shed made a useful suggestion which I have explored. The Tower of London has ample room, and added facilities.