Income from Rent

24shaw · 15 June 2017 at 2:42PM

Hi, I currently have a 3 bed detached house outside of Manchester, I am fed up of commuting and while I am still young I would like to experience city life, I have tenants ready to move into my house at the end of the month. I have yet to find a flat in the city centre as I am unsure how much money I will have to spend because of income tax I may or may not have to pay on the rental income I get.

I have a full time job earning over mid 40s and a mortgage of 550 a month with rent income of £850 a month. Can anyone let me know how much I will be paying with tax on the rent income, will it be 40%?

I have consent to let from my mortgage provider, I will pay landlords insurance, i want everything to be above board.

Guest101 · 15 June 2017 at 2:44PM

Yes it will be 40%

00ec25 · 15 June 2017 at 2:49PM

you have a job paying "mid 40s" therefore you are a higher rate taxpayer if your total income (salary + taxable profit from letting) = > £45,000 pa
https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18

the higher rate tax is 40%

if your question is really what amount of tax will i pay then we cannot answer that without at lot more figures to work out your actual taxable net profit

theartfullodger · 15 June 2017 at 2:50PM

Don't forget there are also expenses - repairs, insurance, management fees, mortgage costs, etc etc etc etc etc...

24shaw · 15 June 2017 at 2:51PM

Thanks for your response. How frustrating! Is it 40% of the entire rental income? If I pay management fees to the agent, is that knocked off? and do I not ignore the interest part of the mortgage?

Its all very confusing.

00ec25 · 15 June 2017 at 2:53PM

24shaw wrote: »

Thanks for your response. How frustrating! Is it 40% of the entire rental income? If I pay management fees to the agent, is that knocked off? and do I not ignore the interest part of the mortgage?

Its all very confusing.

it is only confusing because you appear to have done no research yet despite being a highly paid employee!

start with the basics....
https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

DumbMuscle · 15 June 2017 at 3:17PM

As a side note, if you have student loan repayments, they will also be taken out of your rental income when you do your self assessment (9%).

And you will be liable for capital gains tax when you sell the property.

The income tax you will pay is (rent - expenses)*0.4 - i.e. any expenses are subtracted from the income used to calculate the tax, not the tax paid. The link above describes what counts as "expenses". Mortgage *interest* (not the full repayment) is an expense, but you can only claim back a reduced tax rate on it.

You are probably not going to earn more after tax than your mortgage payments.

aneary · 15 June 2017 at 3:19PM

DumbMuscle wrote: »

A
And you will be liable for capital gains tax when you sell the property.

I don't think the OP wants to sell the property just rent out whilst he is young enough to enjoy the city.

hazyjo · 15 June 2017 at 3:24PM

You could always just sell it and buy in the centre. Or are you worried about making a mistake?

You'll still have tenants in for at least 6 or 12 months so won't be able to move back if you don't like it.

24shaw · 15 June 2017 at 3:28PM

I don't pay Student loans fortunately, my employer paid for my studying.

Its the expenses part that I am now trying to get my head around, do agents fees count as an expense? Does the mortgage?

Is capital gains tax something I will need to worry about if I sell the house while its still rented?

24shaw · 15 June 2017 at 3:30PM

Hazyjo, that is an option I suppose. I just worry that in a year or so I might want to settle down in the house again.

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