Buy to Let Newbies - Tax advice needed please

Merchandiser2367 · 18 June 2017 at 7:46PM

Hi all,

My wife and I have just invested in a buy to let property - a 2 bedroom flat.

We have done this as would like to give our daughter a helping hand on the step on the housing ladder when she is older.

We've already got tenants in place who pay £585 rent. The mortgage is £402 a month but after insurance, letting agents fees, maintenance and ground rent etc. we make an approx £10 loss each month which we are more than happy with as is a long term investment for on our daughter.

If anyone out there could let us know how much tax we need to keep back each month from rent payments, it would be much appreciated as we are unsure if we have to pay tax on a loss?

Thanking you all in advance!

MonkeyDr · 18 June 2017 at 8:15PM

Ok...

So, your income from the flat is £585 x 12 = £7020.

Subtract your non-finance related costs (insurance, ground rent etc); it sounds like these might add up to say 2400 / year. So income is £5600 ish.

You pay tax on this at your marginal rate, which obviously depends on how much you earn elsewhere. If you and your wife own the property 50/50 you are each liable to pay tax on 50%, so on £2800 each. If you are 40% tax payers that would be tax bill of £1120 each.

You then get a rebate based on the interest only bit of the mortgage (not repayment part, if that it what you have). This is currently being tapered down, so that in a few years the max rebate you would get will be 20%. Bit complicated at the moment.

What it boils down to is tax liability depends on your other income, interest v repayment mortgage, flat ownership etc. It seems likely that your 'losses' each month will be somewhat greater than you had initially planned, and that is not accounting for voids, repairs etc. I hope your daughter appreciates it.

But, if you are 20% tax payers, and the rental income doesn't push you into the next bracket, and it is a purely interest only mortgage, then you really are running a loss each month and probably don't have to pay any extra tax. Slightly risky investment though.

cte1111 · 18 June 2017 at 8:15PM

Is the mortgage a repayment mortgage or interest only? Only the interest can be used as an expense, so any repayment part will not count. This is also being gradually reduced, check out some online guides for help:

http://www.moneysupermarket.com/landlord-insurance/buy-to-let-tax-relief/

http://www.telegraph.co.uk/investing/buy-to-let/new-buy-to-let-tax-works-andhow-beat/

https://www.gov.uk/renting-out-a-property/paying-tax

This should help you work out how much of a profit you are making. The amount of tax you will then pay depends on what other income you and your wife have.

G_M · 18 June 2017 at 8:17PM

This post has lots of useful links including to HMRC:

* New landlords: advice, information & links
and

* Letting agents: how should a landlord select or sack?

Merchandiser2367 · 19 June 2017 at 6:10PM

MonkeyDr wrote: »

Ok...

So, your income from the flat is £585 x 12 = £7020.

Subtract your non-finance related costs (insurance, ground rent etc); it sounds like these might add up to say 2400 / year. So income is £5600 ish.

You pay tax on this at your marginal rate, which obviously depends on how much you earn elsewhere. If you and your wife own the property 50/50 you are each liable to pay tax on 50%, so on £2800 each. If you are 40% tax payers that would be tax bill of £1120 each.

You then get a rebate based on the interest only bit of the mortgage (not repayment part, if that it what you have). This is currently being tapered down, so that in a few years the max rebate you would get will be 20%. Bit complicated at the moment.

What it boils down to is tax liability depends on your other income, interest v repayment mortgage, flat ownership etc. It seems likely that your 'losses' each month will be somewhat greater than you had initially planned, and that is not accounting for voids, repairs etc. I hope your daughter appreciates it.

But, if you are 20% tax payers, and the rental income doesn't push you into the next bracket, and it is a purely interest only mortgage, then you really are running a loss each month and probably don't have to pay any extra tax. Slightly risky investment though.

Thank you for you detailed response! Much appreciated!!

The mortgage is a repayment mortgage as we wanted to own it at the end of the term. My wife is a 40% tax payer and I am 20% So from what you're saying, we are looking at around £140 a month?

Not sure I have my sums correct there at all so advice would also be appreciated?

I know you say this is a risky investment but with the mortgage being paid off by the tenant, surely we are still going to be better off even with this tax amount? Or am I missing something obvious?

Thanks again

bob_bank_spanker · 19 June 2017 at 6:26PM

Merchandiser2367 wrote: »

Thank you for you detailed response! Much appreciated!!

The mortgage is a repayment mortgage as we wanted to own it at the end of the term. My wife is a 40% tax payer and I am 20% So from what you're saying, we are looking at around £140 a month?

Not sure I have my sums correct there at all so advice would also be appreciated?

I know you say this is a risky investment but with the mortgage being paid off by the tenant, surely we are still going to be better off even with this tax amount? Or am I missing something obvious?

Thanks again

Why surely? You are making a cash loss, that you are then paying tax on. What you have done is gambled that the value of your investment (house prices) will go up.

Not too different to me putting 50k into Unilever stocks, I will receive dividends over the next ten years, but whether I actually make money is down to other people (ie the market).

It may pay off, it may not, but there is nothing sure about it

Crashy_Time · 19 June 2017 at 6:57PM

Merchandiser2367 wrote: »

Thank you for you detailed response! Much appreciated!!

The mortgage is a repayment mortgage as we wanted to own it at the end of the term. My wife is a 40% tax payer and I am 20% So from what you're saying, we are looking at around £140 a month?

Not sure I have my sums correct there at all so advice would also be appreciated?

I know you say this is a risky investment but with the mortgage being paid off by the tenant, surely we are still going to be better off even with this tax amount? Or am I missing something obvious?

Thanks again

Repairs, periods with no tenant when you have to pay the mortgage and council tax, interest rate rises on BTL mortgages, nightmare tenant that won`t pay rent and won`t leave etc. This is just a leveraged gamble that might have worked years ago, but probably won`t work so well now?

Merchandiser2367 · 19 June 2017 at 7:39PM

bob_bank_spanker wrote: »

Why surely? You are making a cash loss, that you are then paying tax on. What you have done is gambled that the value of your investment (house prices) will go up.

Not too different to me putting 50k into Unilever stocks, I will receive dividends over the next ten years, but whether I actually make money is down to other people (ie the market).

It may pay off, it may not, but there is nothing sure about it

My thought was even if the house price stayed the same and to make it easy for sums, we had a tenant in for the full term - the £93,000 mortgage would be paid off by the tenant, the loss we would make would only be in the first few years until we get the mortgage interest down Etc then it would be a smaller mortgage each month so more profit - at the end we would have £93,000 in our pocket paid be the tenant minus any losses we made along the Way? And I can't see the losses being anywhere near this?

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Buy to Let Newbies - Tax advice needed please

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