buy to let
RuleTheWorld
Posts: 145 Forumite
in Cutting tax
in simple terms for a simpleton....
what is taxable in a buy to let situation?
'Profit' presumably so Rent less the interest on the debt?
What costs can you reclaim?
How would you split the income between a married couple? In theory your partner could take all the earnings? This would have an advantage of a lower tax bracket possibly?
What about opening a private pension equal to the so called 'profit' - that would remove all or the majority of any tax burden?
Like the idea of a buy to let in terms of having an asset 10-20 years down the line fully bought and paid for. Not particular interested in achieving a profit/loss month to month.
Not being allowed to claim the debt repayment as costs is the sticking point but the pension possibility could remove that.
what is taxable in a buy to let situation?
'Profit' presumably so Rent less the interest on the debt?
What costs can you reclaim?
How would you split the income between a married couple? In theory your partner could take all the earnings? This would have an advantage of a lower tax bracket possibly?
What about opening a private pension equal to the so called 'profit' - that would remove all or the majority of any tax burden?
Like the idea of a buy to let in terms of having an asset 10-20 years down the line fully bought and paid for. Not particular interested in achieving a profit/loss month to month.
Not being allowed to claim the debt repayment as costs is the sticking point but the pension possibility could remove that.
0
Comments
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rental profit is not classed as earnings so cannot be paid into a pension for tax relief purposes
as a married couple your profit split must be a) registered with HMRC (google Form 17) and b) reflect the actuality of who owns how much
the rest of your questions are facts you can read yourself, start here:
https://www.gov.uk/renting-out-a-property/paying-tax0 -
wasnt meaning the rental profit so to speak but other normal earnings could be ploughed into pension to offset the additional tax?
Can you get round ownership split by one partner acting as a guarantor on the mortgage similar to how you might do for a child?0 -
RuleTheWorld wrote: »wasnt meaning the rental profit so to speak but other normal earnings could be ploughed into pension to offset the additional tax?
Can you get round ownership split by one partner acting as a guarantor on the mortgage similar to how you might do for a child?
Guarantor has no benefit other than allowing someone to get credit when they have not built up a credit rating such as a uni student.0 -
yes and that uni student owns the property and would probably be in lower tax bracket?0
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in any event you dont report profit under £5k? (presuming two joint owners?)0
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so lets take an example
mortgage £600 (£300 interest and £300 debt repay)
rent £700 (for ten months of the year)
costs £500
Profit is
£7000 - £3600 - £500
= £3900
to be taxed at your marginal rate
= £1560 if 40% tax bracket
The reality is
£7000 - £7200 - £500
= - £700
So you need to find the money for a tax bill in that scenario or do you just have your tax code adjusted?0 -
RuleTheWorld wrote: »so lets take an example
mortgage £600 (£300 interest and £300 debt repay)
rent £700 (for ten months of the year)
costs £500
Profit is
£7000 - £3600 - £500
= £3900
to be taxed at your marginal rate
= £1560 if 40% tax bracket
The reality is
£7000 - £7200 - £500
= - £700
So you need to find the money for a tax bill in that scenario or do you just have your tax code adjusted?
You need to find the money. You can change your BTL mortgage to interest only which will give you the money to pay your tax bill. As the interest is an expense you want to maximize your expenses as much as possible. To repay the mortgage you can either save in tax free ISA's or just sell the property at the end of the term. You may also get your tax code adjusted so next year you might not have to find the money but your monthly salary will be lower.:footie:
Regular savers earn 6% interest (HSBC, First Direct, M&S) Loans cost 2.9% per year (Nationwide) = FREE money. 0 -
Also, tax rules are changing over the next few years, you'll no longer get full 40% tax relief on mortgage interest if you're a 40% tax payer.
I'll use the same figures as above to illustrate (also correct an adding up error)
so lets take an example
mortgage £600 (£300 interest and £300 debt repay)
rent £700 (for ten months of the year)
costs £500
Current situation
Profit is
£7000 - £3600 - £500
= £2900
to be taxed at your marginal rate
= £580 if 20% tax bracket
= £1160 if 40% tax bracket
So your actual 'take home' after tax is
20% Tax Payer: 7000-7200-500-580 = -£1280
40% Tax Payer: 7000-7200-500-1160 = -£1860
With the changes being phased in from now to 2020, it would look like this
Profit is
£7000 - £500
= £6500
to be taxed at your marginal rate, then a credit of 20% of your mortgage interest
= £1300 - 20% of £3600 = £580 if 20% tax bracket
= £2600 - 20% of £3600 = £1880 if 40% tax bracket
So your actual 'take home' after tax is
20% Tax Payer: 7000-7200-500-580 = -£1280
40% Tax Payer: 7000-7200-500-1880 = -£2580
The real shock with this new rule is that, as mortage interest is dealt with seperately as a 'credit', it means peoples taxable income will go up by whatever their mortgage interest is, pushing many who think they are safe in the 20% into the 40% bracket.
Brighty0 -
ive not overlooked paying down the mortgage whatsoever
Ive got the capital to do it but just dont see it being fully worth the hassle all in. I also knew the tax was becoming a bit more complicated (and also SNP propose bringing in a rent cap)0 -
your opening question "what costs can be claimed" belies the fact that you apparently do not know how tax works. The rest of this thread appears to be you making a statement and then coming on afterwards to say that was not what you meant. We are not mind readers, if you already know something then say so and stop wasting people's time in their replying. I have therefore deleted my other posts which were a waste of my timeRuleTheWorld wrote: »ive not overlooked paying down the mortgage whatsoever
Ive got the capital to do it but just dont see it being fully worth the hassle all in. I also knew the tax was becoming a bit more complicated (and also SNP propose bringing in a rent cap)
your scenario made no mention of your knowledge of the effects of paying down the capital and reads like a complaint that you are being taxed on the full profit0
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