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  • FIRST POST
    • 24shaw
    • By 24shaw 15th Jun 17, 2:42 PM
    • 5Posts
    • 0Thanks
    24shaw
    Income from Rent
    • #1
    • 15th Jun 17, 2:42 PM
    Income from Rent 15th Jun 17 at 2:42 PM
    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.
Page 1
    • Guest101
    • By Guest101 15th Jun 17, 2:44 PM
    • 14,477 Posts
    • 14,159 Thanks
    Guest101
    • #2
    • 15th Jun 17, 2:44 PM
    • #2
    • 15th Jun 17, 2:44 PM
    Yes it will be 40%
    • 00ec25
    • By 00ec25 15th Jun 17, 2:49 PM
    • 4,300 Posts
    • 3,651 Thanks
    00ec25
    • #3
    • 15th Jun 17, 2:49 PM
    • #3
    • 15th Jun 17, 2:49 PM
    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
    Last edited by 00ec25; 15-06-2017 at 2:55 PM.
    • theartfullodger
    • By theartfullodger 15th Jun 17, 2:50 PM
    • 8,779 Posts
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    theartfullodger
    • #4
    • 15th Jun 17, 2:50 PM
    • #4
    • 15th Jun 17, 2:50 PM
    Don't forget there are also expenses - repairs, insurance, management fees, mortgage costs, etc etc etc etc etc...
    • 24shaw
    • By 24shaw 15th Jun 17, 2:51 PM
    • 5 Posts
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    24shaw
    • #5
    • 15th Jun 17, 2:51 PM
    • #5
    • 15th Jun 17, 2:51 PM
    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
    • By 00ec25 15th Jun 17, 2:53 PM
    • 4,300 Posts
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    00ec25
    • #6
    • 15th Jun 17, 2:53 PM
    • #6
    • 15th Jun 17, 2:53 PM
    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.
    Originally posted by 24shaw
    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
    • By DumbMuscle 15th Jun 17, 3:17 PM
    • 241 Posts
    • 287 Thanks
    DumbMuscle
    • #7
    • 15th Jun 17, 3:17 PM
    • #7
    • 15th Jun 17, 3:17 PM
    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
    • By aneary 15th Jun 17, 3:19 PM
    • 315 Posts
    • 191 Thanks
    aneary
    • #8
    • 15th Jun 17, 3:19 PM
    • #8
    • 15th Jun 17, 3:19 PM
    A
    And you will be liable for capital gains tax when you sell the property.
    Originally posted by DumbMuscle
    I don't think the OP wants to sell the property just rent out whilst he is young enough to enjoy the city.
    • hazyjo
    • By hazyjo 15th Jun 17, 3:24 PM
    • 9,165 Posts
    • 11,519 Thanks
    hazyjo
    • #9
    • 15th Jun 17, 3:24 PM
    • #9
    • 15th Jun 17, 3:24 PM
    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.
    2017 wins: Opera tickets; film preview; lipstick; Ideal Home Show tickets + afternoon tea & bottle of Champagne; 2 cases of NKD; notebook; bath rack; books; film Premiere; Broadchurch DVDs; lipbalms; hamper (food/wine/Echo Dot/Jo Malone goodies)
    • 24shaw
    • By 24shaw 15th Jun 17, 3:28 PM
    • 5 Posts
    • 0 Thanks
    24shaw
    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
    • By 24shaw 15th Jun 17, 3:30 PM
    • 5 Posts
    • 0 Thanks
    24shaw
    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.
    • Conrad
    • By Conrad 15th Jun 17, 3:53 PM
    • 31,210 Posts
    • 54,080 Thanks
    Conrad
    The Govt is in process of reducing the amount of mortgage that can be offset against rent - remember what the audience says in all those TV political discussions - that they are happy to pay a little more tax for the NHS etc. Well it has to come from somewhere, but we always want that somewhere to be 'someone else' in reality.


    So think of yourself as a jolly good citizen helping nurses get a pay rise, after all we all say that's what we want.


    PS I am a Landlord. My plan is to increase rents if possible to cover tax rise costs being phased in, but obviously the market dictates the rent one can achieve.
    Will European citizens take kindly to bloated Brussels elites harming their livelihoods with barriers to their UK trade? 9% of Dutch exports come to the UK....
    • Pixie5740
    • By Pixie5740 15th Jun 17, 3:59 PM
    • 10,614 Posts
    • 14,587 Thanks
    Pixie5740
    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?
    Originally posted by 24shaw
    Here's a novel idea, why don't you read the information in the link 00ec25 has given you? Then this starter for 10 on Capital Gains Tax.

    https://www.gov.uk/capital-gains-tax/work-out-need-to-pay.

    Once you've got your head around that you might want to read G_M's guidance for New Landlords taken from his Guide to Tenancies in England & Wales.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • hazyjo
    • By hazyjo 15th Jun 17, 4:40 PM
    • 9,165 Posts
    • 11,519 Thanks
    hazyjo
    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.
    Originally posted by 24shaw
    It's the risk everyone takes when they move.


    I'm hopefully off to the seaside this year. I'm taking the gamble that I won't want to come back to London and selling up. Absolutely no desire to be a LL with all it entails. You would prob get higher rents in the centre of Manchester so you could always do then what you're planning to do now - rent out whatever you buy and then come back out again.
    2017 wins: Opera tickets; film preview; lipstick; Ideal Home Show tickets + afternoon tea & bottle of Champagne; 2 cases of NKD; notebook; bath rack; books; film Premiere; Broadchurch DVDs; lipbalms; hamper (food/wine/Echo Dot/Jo Malone goodies)
    • 24shaw
    • By 24shaw 15th Jun 17, 5:27 PM
    • 5 Posts
    • 0 Thanks
    24shaw
    The trouble is, to purchase a flat in the city centre, where I want to rent is much more expensive than my three bed detached outside the city.

    I have taken on board everyones comments (including the ones with hints of sarcasm) and I believe my calculations should be correct:

    Income from the rental= £850
    Management fee - £68
    Interest on my Mortgage = £288

    So £850 - £68 - £288 = £494

    I then pay 40% tax on this £494 profit = £197

    So I get £850, minus £68 fees, minus £197 tax:

    850 - 68 - 197 = £585 income from the house. Enough to cover the rent and insurance, any additional fee's for boiler repairs etc I would have to do even if I lived there (unless the tenants are complete numptys).
    • 00ec25
    • By 00ec25 15th Jun 17, 6:07 PM
    • 4,300 Posts
    • 3,651 Thanks
    00ec25
    The trouble is, to purchase a flat in the city centre, where I want to rent is much more expensive than my three bed detached outside the city.

    I have taken on board everyones comments (including the ones with hints of sarcasm) and I believe my calculations should be correct:

    Income from the rental= £850
    Management fee - £68
    Interest on my Mortgage = £288

    So £850 - £68 - £288 = £494

    I then pay 40% tax on this £494 profit = £197

    So I get £850, minus £68 fees, minus £197 tax:

    850 - 68 - 197 = £585 income from the house. Enough to cover the rent and insurance, any additional fee's for boiler repairs etc I would have to do even if I lived there (unless the tenants are complete numptys).
    Originally posted by 24shaw
    incorrect. You cannot deduct the mortgage interest as a cost, you are a higher rate taxpayer so you only get tax relief at 20%
    read: https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

    insurance would of course be an eligible cost as explained in the link. Also remember, as explained in GM's guide, as a Landlord there are some costs that are not discretionary, for example you mention "boiler", so assuming that is gas powered, you are legally required to have an annual safety inspection. That is not the same as a service

    you may also incur the deposit protection scheme fees depending on a) whether you take a deposit and b) which scheme you use
    Last edited by 00ec25; 15-06-2017 at 6:10 PM.
    • saajan_12
    • By saajan_12 16th Jun 17, 11:14 AM
    • 561 Posts
    • 362 Thanks
    saajan_12
    incorrect. You cannot deduct the mortgage interest as a cost, you are a higher rate taxpayer so you only get tax relief at 20%
    Originally posted by 00ec25
    Incorrect. For the next 3 years, some of your mortgage interest gets 20% relief, some gets 40%. After that it will be all at 20%
    2017-18: 75% of interest gets 40% relief, 25% gets 20% relief
    2018-19: 50% of interest gets 40% relief, 50% gets 20% relief
    2019-20: 25% of interest gets 40% relief, 75% gets 20% relief
    2020-onwards: all interest gets 20% relief.
    • 00ec25
    • By 00ec25 16th Jun 17, 12:03 PM
    • 4,300 Posts
    • 3,651 Thanks
    00ec25
    Incorrect. For the next 3 years, some of your mortgage interest gets 20% relief, some gets 40%. After that it will be all at 20%
    2017-18: 75% of interest gets 40% relief, 25% gets 20% relief
    2018-19: 50% of interest gets 40% relief, 50% gets 20% relief
    2019-20: 25% of interest gets 40% relief, 75% gets 20% relief
    2020-onwards: all interest gets 20% relief.
    Originally posted by saajan_12
    not incorrect, the link I gave above fully explains the transition arrangements and should be read in detail. You cannot, as OP has written, claim all of the interest as a cost ...
    • Crashy Time
    • By Crashy Time 16th Jun 17, 12:18 PM
    • 4,397 Posts
    • 2,022 Thanks
    Crashy Time
    The trouble is, to purchase a flat in the city centre, where I want to rent is much more expensive than my three bed detached outside the city.

    I have taken on board everyones comments (including the ones with hints of sarcasm) and I believe my calculations should be correct:

    Income from the rental= £850
    Management fee - £68
    Interest on my Mortgage = £288

    So £850 - £68 - £288 = £494

    I then pay 40% tax on this £494 profit = £197

    So I get £850, minus £68 fees, minus £197 tax:

    850 - 68 - 197 = £585 income from the house. Enough to cover the rent and insurance, any additional fee's for boiler repairs etc I would have to do even if I lived there (unless the tenants are complete numptys).
    Originally posted by 24shaw

    You can`t rely on rental income, it might not come in every month as planned.
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