Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • lesterxburnham
    • By lesterxburnham 30th Nov 17, 6:36 PM
    • 49Posts
    • 0Thanks
    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 4
    • getmore4less
    • By getmore4less 3rd Dec 17, 3:16 PM
    • 30,771 Posts
    • 18,379 Thanks
    getmore4less
    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
    Originally posted by 00ec25
    the net cash after interest and expenses is (£530-£300)*7 - £210 = £1400

    then remove the net tax £665

    net post tax profit in cash terms £735.


    very easy to forget to take off the 25% of interest not deducted in the net profit calculation for tax......
    • 00ec25
    • By 00ec25 3rd Dec 17, 3:32 PM
    • 5,557 Posts
    • 4,948 Thanks
    00ec25
    the net cash after interest and expenses is (£530-£300)*7 - £210 = £1400

    then remove the net tax £665

    net post tax profit in cash terms £735.


    very easy to forget to take off the 25% of interest not deducted in the net profit calculation for tax......
    Originally posted by getmore4less
    indeed, even as i added the words "in cash terms" I knew they were wrong, but hey ho, someone always corrects mistakes, so I could not be bothered to edit it.
    • lesterxburnham
    • By lesterxburnham 4th Dec 17, 10:19 PM
    • 49 Posts
    • 0 Thanks
    lesterxburnham
    the economics of his situation do not make financial sense
    Originally posted by 00ec25
    can you elaborate more on why economics of my situation does not make sense please? I seriously would like to find out as in my eyes, I am getting someone else to pay off my mortgage. And I understand that I will have expenses/void periods etc but even then, I'll be paying off my own flat which once paid off, I can rent and have additional income from that (which is one of my plans for pension)
    • Crashy Time
    • By Crashy Time 5th Dec 17, 2:16 PM
    • 5,274 Posts
    • 2,217 Thanks
    Crashy Time
    can you elaborate more on why economics of my situation does not make sense please? I seriously would like to find out as in my eyes, I am getting someone else to pay off my mortgage. And I understand that I will have expenses/void periods etc but even then, I'll be paying off my own flat which once paid off, I can rent and have additional income from that (which is one of my plans for pension)
    Originally posted by lesterxburnham

    How long will your mortgage last?
    • ciderboy2009
    • By ciderboy2009 5th Dec 17, 2:38 PM
    • 307 Posts
    • 272 Thanks
    ciderboy2009
    I'm surprised that nobody has asked how long your consent to let lasts with your mortgage provider?

    Normally it's only a short term thing with the mortgage company wanting you to switch to a buy 2 let mortgage asap (higher interest rates so more profit for them - less for you).
    • 00ec25
    • By 00ec25 5th Dec 17, 6:46 PM
    • 5,557 Posts
    • 4,948 Thanks
    00ec25
    can you elaborate more on why economics of my situation does not make sense please?
    Originally posted by lesterxburnham
    simple, yes your mortgage is being partially paid off but:
    a) not in full
    b) you are not making an absolute profit that supplements your income in a meaningful manner whilst you are being taxed on income you don't actually get.
    c) you have zero ability to absorb further interest rises
    d) you are at risk of having to switch to an even more expensive mortgage product

    you are basically playing at being a LL with the long term hope that you will not spend too much money in arriving at the final destination of having a property that was mostly paid for by someone else without it having cost you too much tax in the meantime when the rules change again
    Last edited by 00ec25; 06-12-2017 at 4:59 PM.
    • westernpromise
    • By westernpromise 6th Dec 17, 1:05 PM
    • 3,272 Posts
    • 4,070 Thanks
    westernpromise
    simple, yes your mortgage is being partially paid off but:
    a) not in full
    b) you are not making an absolute profit that supplements your income in a meaningful manner whilst you are being taxed on income you don't actually get.
    c) you have zero ability to absorb further interest rises
    d) you are at risk of having to switch to an even more expensive mortgage product

    you are basically playing at being a LL with the long term hope that you will not spend too much money in arriving at the final destination of having a property that was mostly paid for by someone else without it having cost you too much tax in the meantime when the rules change again
    Originally posted by 00ec25
    But apart from that it looks great!
    The Lottery, with its weekly pay-out of enormous prizes, was the one public event to which the proles paid serious attention. It was probable that there were some millions of proles for whom the Lottery was the principal if not the only reason for remaining alive. -
    George Orwell, Nineteen-Eighty-Four
    • Crashy Time
    • By Crashy Time 6th Dec 17, 4:52 PM
    • 5,274 Posts
    • 2,217 Thanks
    Crashy Time
    http://www.section24.org.uk/landlord-tax/
    • 00ec25
    • By 00ec25 6th Dec 17, 5:02 PM
    • 5,557 Posts
    • 4,948 Thanks
    00ec25
    once again Crashy posts an unbalanced article written by a journalist who is probably a paid up member of Crashy's house price crash crew

    should OP wish to understand the real impact of the tax change, then read the HMRC info
    https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies
    • Crashy Time
    • By Crashy Time 6th Dec 17, 10:17 PM
    • 5,274 Posts
    • 2,217 Thanks
    Crashy Time
    once again Crashy posts an unbalanced article written by a journalist who is probably a paid up member of Crashy's house price crash crew

    should OP wish to understand the real impact of the tax change, then read the HMRC info
    https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies
    Originally posted by 00ec25

    Or he could get the "unbalanced" free guide and read the HMRC one to compare the two?
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

355Posts Today

1,491Users online

Martin's Twitter