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    • Tyders
    • By Tyders 8th Jan 18, 10:27 AM
    • 232Posts
    • 80Thanks
    Tyders
    New Landlord - Rental income Tax Help
    • #1
    • 8th Jan 18, 10:27 AM
    New Landlord - Rental income Tax Help 8th Jan 18 at 10:27 AM
    I am looking at renting out a house but want to try and grasp how the tax is calculated to see what is and isn’t possible. If anyone has experience of this and can offer insight it would be appreciated.

    40% tax payer. Interest only mortgage payments would be around £400pm. Rental income would be approx. £900. Leaving a £500 “profit”.

    Is it simply working out that I take the £500 minus any spend like refurb/repair costs etc and then set aside 40% of that as tax and I can keep the balance? so £300pm (500 - 40%) if no costs.

    Or is it that I will be taxed on the whole £900 so £900 - £400 interest - £360 tax (40% of 900 income) leaving just £140 and if so where so I deduct repair and refurb costs?

    Thank you
Page 1
    • anselld
    • By anselld 8th Jan 18, 10:37 AM
    • 5,492 Posts
    • 5,079 Thanks
    anselld
    • #2
    • 8th Jan 18, 10:37 AM
    • #2
    • 8th Jan 18, 10:37 AM
    Allowable expenses are deducted to calculate profit and hence tax....

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

    ... however, please note that finance expense is being restricted for higher rate tax payers so that by 2020 only half of your mortgage interest will be deductible.
    • Comms69
    • By Comms69 8th Jan 18, 11:01 AM
    • 1,742 Posts
    • 1,591 Thanks
    Comms69
    • #3
    • 8th Jan 18, 11:01 AM
    • #3
    • 8th Jan 18, 11:01 AM
    Have you factored in voids, sinking fund, repairs, etc.?


    - it almost doesn't seem worthwhile to be honest, but that's not my business
    • saajan_12
    • By saajan_12 8th Jan 18, 11:04 AM
    • 1,036 Posts
    • 693 Thanks
    saajan_12
    • #4
    • 8th Jan 18, 11:04 AM
    • #4
    • 8th Jan 18, 11:04 AM
    Say your non financing expenses e.g. repairs, insurance, GSC etc are £50 per month.

    1) Calculate income net of non financing expenses
    £900 - £50 = £850

    2) Calculate income tax on net income pre financing expenses
    £850 x 40% = £340

    3) Calculate tax relief on interest cost £400 (part gets full 40% relief,
    part gets basic rate 20% relief.. below is until Apr 2018, proportions will worsen until 2020 when it's all at 20% and none at 40%)
    75% x £400 x 40% relief + 25% x £400 x 20% relief = £140 relief

    4) Total tax is £340 - £140 -= £200

    Overall, you have
    +£900 rent income
    -£400 mortgage interest cost
    -£ 50 other costs
    -£200 tax

    £250 profit.
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