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  • FIRST POST
    • lesterxburnham
    • By lesterxburnham 30th Nov 17, 6:36 PM
    • 49Posts
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    lesterxburnham
    Tax from renting when most of rent goes into paying off mortgage
    • #1
    • 30th Nov 17, 6:36 PM
    Tax from renting when most of rent goes into paying off mortgage 30th Nov 17 at 6:36 PM
    Hi,
    I started renting my flat from 1st September 2017. Am I understanding it correctly that I have to register for self assessment before 30th September 2018?

    Another question is whether I need to register at all if I charge £530 for rent out of which £520 is going into paying off the mortgage on that property?

    Is there anything else I need to do as far as HMRC is concerned? Do I need to pay any additional insurance contributions or other tax? I am in full time employment and I'm renting based on consent to let (i.e. my mortgage is not buy to let) if that makes any difference.
Page 2
    • deannatrois
    • By deannatrois 30th Nov 17, 10:51 PM
    • 4,907 Posts
    • 6,873 Thanks
    deannatrois
    Re Private Rental Tenancies to be used from tomorrow in Scotland

    https://beta.gov.scot/policies/private-renting/private-tenancy-reform/

    Sounds a big improvement on TA's in England. I like the ability of councis to apply to make an area a pressure zone so rental values can be capped (if accepted). But it might make repossession a bit easier for LL's too (haven't read in detail).
    Last edited by deannatrois; 30-11-2017 at 10:54 PM.
    • lesterxburnham
    • By lesterxburnham 30th Nov 17, 11:18 PM
    • 49 Posts
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    lesterxburnham
    I appreciate your concerns so to prevent topic going even more into wrong direction - I'm registered with council, I've got electricity safety certificate & PAT (no gas in flat so no need for gas safety certificate), mains powered smoke alarms (and fire blanket!), gave tenants required notices for assured shorthold tenancy agreement and got signed tenancy agreements + buildings and contents insurance in place.

    yes, I've got repayment mortgage and I don't treat renting this property as my income, I've got a job that pays me well enough. All I want is someone to pay off my mortgage and I don't want to lose money. Which is the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC.

    All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.
    • boliston
    • By boliston 30th Nov 17, 11:31 PM
    • 2,452 Posts
    • 2,017 Thanks
    boliston
    I would have thought service charges and ground rent would normally be quite a large cost to consider when setting rent levels. Another big cost to consider will be void periods, so you will need to set rents to accommodate these, and you will also need to plan for possible non payment of rent and recovery costs, as well as the costs of regaining possession in some cases.
    • 00ec25
    • By 00ec25 30th Nov 17, 11:43 PM
    • 5,555 Posts
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    00ec25
    All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.
    Originally posted by lesterxburnham
    the HMRC guides show you how to calculate net profit so how come you cannot work them using smaller figures to arrive at zero net profit and thus no tax payable? BTW that will be rather hard since you cannot be certain that the rent will be paid every month or that costs won't increase or you have a one off "biggie". More importantly your start number, the rent, is, to an extent, outside your control since it must be based on what the market will pay or you won't have a tenant to start with.

    I can understand you wanting to be "cheap" if that means you get a tenant who stays "forever" because they are on to such a good thing, and you are higher/additional rate taxpayer so "don't" ? need the money, nonetheless that is a stupid approach to being a LL
    Last edited by 00ec25; 01-12-2017 at 11:18 AM.
    • Crashy Time
    • By Crashy Time 1st Dec 17, 12:58 AM
    • 5,274 Posts
    • 2,217 Thanks
    Crashy Time
    I appreciate your concerns so to prevent topic going even more into wrong direction - I'm registered with council, I've got electricity safety certificate & PAT (no gas in flat so no need for gas safety certificate), mains powered smoke alarms (and fire blanket!), gave tenants required notices for assured shorthold tenancy agreement and got signed tenancy agreements + buildings and contents insurance in place.

    yes, I've got repayment mortgage and I don't treat renting this property as my income, I've got a job that pays me well enough. All I want is someone to pay off my mortgage and I don't want to lose money. Which is the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC.

    All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.
    Originally posted by lesterxburnham

    One can dream I suppose.....
    • Cakeguts
    • By Cakeguts 1st Dec 17, 1:26 AM
    • 3,272 Posts
    • 4,558 Thanks
    Cakeguts
    I appreciate your concerns so to prevent topic going even more into wrong direction - I'm registered with council, I've got electricity safety certificate & PAT (no gas in flat so no need for gas safety certificate), mains powered smoke alarms (and fire blanket!), gave tenants required notices for assured shorthold tenancy agreement and got signed tenancy agreements + buildings and contents insurance in place.

    yes, I've got repayment mortgage and I don't treat renting this property as my income, I've got a job that pays me well enough. All I want is someone to pay off my mortgage and I don't want to lose money. Which is the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC.

    All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.
    Originally posted by lesterxburnham
    That is probably because people don't try to run a business that keeps making a loss which is what you are trying to do.

    You have a property that is not suitable as a rental property because it doesn't let for enough money for you to cover your costs. You can't charge more than someone is prepared to pay so you are going to just continue to lose money. The only way to stop this is to sell the property.

    If you want a rental property you need to buy a property for that purpose where you can make some money. The one you have at the moment is not going to do that. What people in your position do is they sell it. Most people don't want to run a business that constantly makes a loss. Letting property is a business there is no point in doing it if you can't make any money.
    • getmore4less
    • By getmore4less 1st Dec 17, 6:46 AM
    • 30,758 Posts
    • 18,377 Thanks
    getmore4less
    You won't get tax relief on your mortgage, you only get it on the interest.

    you have said,
    Another question is whether I need to register at all if I charge £530 for rent out of which £520 is going into paying off the mortgage on that property?
    lets do a guess 25years 3% that's £110k paying £520pm

    on repayment that's £275 pm interest(decreasing over time)

    you then say

    'm on 40% tax bracket. How does it affect my HMRC obligations?

    Easy rough way to work this is 40% on £520 and 20% tax relief on £275 that will get you close to where it is going to be soon.

    You are going to owe the tax man around (£208-£55) £150.
    you might get that lower with some expenses but that just makes the net position even worse

    someone can do the proper numbers if you provide the mortgage details.
    • Edi81
    • By Edi81 1st Dec 17, 7:04 AM
    • 325 Posts
    • 200 Thanks
    Edi81
    Visit an accountant.
    Renting out a property is not something to be taken lightly.
    Remember, once you register for self assessment the submissions will also need to cover your PAYE employment income.

    You sound very naive about the whole process but you need to get this sorted. It may result that renting out isn’t worth it for you.
    • Mutton Geoff
    • By Mutton Geoff 1st Dec 17, 7:30 AM
    • 989 Posts
    • 1,026 Thanks
    Mutton Geoff
    the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC
    Originally posted by lesterxburnham


    You are looking at this the wrong way round. The rent you can charge is determined by the market. If you are too expensive, you will not be able to let, if you are too cheap, then unless you have overriding reasons for doing so, you will be throwing money away.


    If you charge market rate, and can make a profit, then that profit can be used to pay down your debt. A reducing amount of interest using a repayment mortgage whilst you can still claim mortgage interest against tax is not good business sense.


    How does your £530 rent charge compare with similar properties in the area?
    Compensations/Refunds from Banks & Institutions - £4,165 | Stooz Profits - £7,636 | Quidco - £4,014

    All with a big thank you to Martin and MSE.com from Mutton Geoff!
    • Crashy Time
    • By Crashy Time 1st Dec 17, 10:35 AM
    • 5,274 Posts
    • 2,217 Thanks
    Crashy Time
    Change the colour scheme, move the couch maybe, and charge £630?
    • lesterxburnham
    • By lesterxburnham 1st Dec 17, 7:15 PM
    • 49 Posts
    • 0 Thanks
    lesterxburnham
    I'm following "Example 3: impact of first year of phased reduction of finance cost" from https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

    Can someone please check if my calculations below are right (for year 2017/18 - property let Sept 2017 - March 2018):

    Rental Income £3710 (7 * £530)
    Fincance costs (£300 interest each month so 7*£300*0.75) = £1575
    Other allowable expenses = (buildings insurance 7*£30) = £210

    Property profits = £3710 - £1575 - £210 = £1925

    Less tax reduction for remaining finance
    costs calculated on 25% of finance
    costs (£1575 x 25% = £393.75)

    now, as per example above sums (£1925 and £393.75), would be both multiplied by 0.2 (due to tax bracket I presume?) but I'm on 0.4 so should I multiply both by 0.4?

    so tax will roughly be:
    (£1925 * 0.4) - (£393.75 * 0.4) = £770 - £157.5 = £612.5
    • getmore4less
    • By getmore4less 1st Dec 17, 7:41 PM
    • 30,758 Posts
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    getmore4less
    You are on repayment the interest will be going down each month.

    Full mortgage details needed.

    House value would be useful as well.
    • BoGoF
    • By BoGoF 1st Dec 17, 7:52 PM
    • 2,708 Posts
    • 1,946 Thanks
    BoGoF
    Your calculations seem very optimistic in that there are a lot of potential expenses you haven't factored in.

    Is there a compelling reason you want to keep hold of this property?
    • BoGoF
    • By BoGoF 1st Dec 17, 8:01 PM
    • 2,708 Posts
    • 1,946 Thanks
    BoGoF
    Just read whole thread.....so basically after paying the mortgage you have £10 left to cover all your other expenses and tax. As soon as you pay your monthly insurance you are losing money and you said you dont want to lose money?
    • Typhoon2000
    • By Typhoon2000 1st Dec 17, 8:08 PM
    • 777 Posts
    • 364 Thanks
    Typhoon2000
    Just read whole thread.....so basically after paying the mortgage you have £10 left to cover all your other expenses and tax. As soon as you pay your monthly insurance you are losing money and you said you dont want to lose money?
    Originally posted by BoGoF
    Hes 'losing' £100 a month but gets his house paid for him. Sounds a good deal.
    What is the going rent for similar properties, maybe you are under pricing the market and can make up that £100.
    • 00ec25
    • By 00ec25 1st Dec 17, 8:13 PM
    • 5,555 Posts
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    00ec25
    Hes 'losing' £100 a month but gets his house partially paid for him. Sounds a good better than paying it all yourself deal.
    Originally posted by Typhoon2000
    made the corrections for you
    Last edited by 00ec25; 01-12-2017 at 8:30 PM.
    • 00ec25
    • By 00ec25 1st Dec 17, 8:28 PM
    • 5,555 Posts
    • 4,945 Thanks
    00ec25
    I'm following "Example 3: impact of first year of phased reduction of finance cost" from https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

    Can someone please check if my calculations below are right (for year 2017/18 - property let Sept 2017 - March 2018):

    Rental Income £3710 (7 * £530)
    Fincance costs (£300 interest each month so 7*£300*0.75) = £1575
    Other allowable expenses = (buildings insurance 7*£30) = £210

    Property profits = £3710 - £1575 - £210 = £1925

    Less tax reduction for remaining finance
    costs calculated on 25% of finance
    costs (£1575 x 25% = £393.75)

    now, as per example above sums (£1925 and £393.75), would be both multiplied by 0.2 (due to tax bracket I presume?) but I'm on 0.4 so should I multiply both by 0.4?

    so tax will roughly be:
    (£1925 * 0.4) - (£393.75 * 0.4) = £770 - £157.5 = £612.5
    Originally posted by lesterxburnham
    rental profit after non finance costs and partially restricted mortgage interest = 1,925

    tax payable 1,925 x 40% = 770
    add back 25% balance of mortgage interest relief capped at 20%: (7*300= 2100 x 25% = 525. check if £525 is less than the property profits (1,925), yes it is, therefore use finance costs not deducted above in capped relief calculation: 525 x 20% = 105

    net post tax profit in cash terms: 1,925 - tax (-770 + 105) = 1,260
    Last edited by 00ec25; 01-12-2017 at 8:32 PM.
    • getmore4less
    • By getmore4less 1st Dec 17, 11:49 PM
    • 30,758 Posts
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    getmore4less
    Just read whole thread.....so basically after paying the mortgage you have £10 left to cover all your other expenses and tax. As soon as you pay your monthly insurance you are losing money and you said you dont want to lose money?
    Originally posted by BoGoF
    The capital part of the mortgage payment is savings/equity so does not count on the P&L.
    • MobileSaver
    • By MobileSaver 2nd Dec 17, 8:20 AM
    • 1,295 Posts
    • 1,771 Thanks
    MobileSaver
    All I want is someone to pay off my mortgage and I don't want to lose money.
    Originally posted by lesterxburnham
    One can dream I suppose.....
    Originally posted by Crashy Time
    Well there are over 10,000 users a day on the HPC site who by definition (and completely misguided and flawed logic) have been paying off landlord's mortgages for well over a decade so for many the dream is actually a reality.
    Respect to 3 of the greatest actors of all time; amazing people who are totally believable as the characters they play & almost single-handedly make the shows they starred in:

    Peter Dinklage as Tyrion Lannister in Game of Thrones
    Daniel J. Travanti as Frank Furillo in Hill Street Blues
    Claire Danes as Carrie Mathison in Homeland
    • kinger101
    • By kinger101 2nd Dec 17, 9:37 AM
    • 3,951 Posts
    • 5,413 Thanks
    kinger101
    Please note that all the links I provided in post 7 are written from an Englandd/Wales perspective.

    You are aware I hope that in Scotland all landlords must be registered with the council?
    Originally posted by G_M
    It's a shame there's not a McG_M.
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