Poised for BTL but how does Tax relief work?

Doogle2

I'm looking to get my 1st BTL. My calcs indicate I'll get about £50 profit per month (based on my investment) which is not alot considering it could easily be wiped out with a big service repair.

However, I shouldnt pay any tax on this as the interest on the mortgage, agent fees and insurance costs will provide enough tax relief.

My question is, will the tax relief spill over to my own salaray and reduce my overall tax burden?

E.g. Say annually I'm earning PAYE £50k, rental yield is £600, tax relief expence (mortgage interest, agent fees, insurance) is £2000. Would this mean that £1400 of my salary would not be taxable, which effectively gives me a rebate of £560?

Werdnal

No, tax on earnings and tax on income from property are treated separately. You need to complete a self-assessment form and must make sure you specifically ask for the section on Income from Property.

What you choose to spent your earnings on - in this case a BTL property - is of no interest to Mr Taxman, so any benefit you may be allowed against your property income, does not apply to your earnings.

Without wishing to judge your research and knowledge of the BTL market, have you genned up on all you need to know? There is a good post here:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

which is a much referred to Newbie guide for landlords. Read it and all the links it contains to make sure you are up to speed, and above all, legal!

If you are only estimating a £50/month profit, have you enough spare cash in reserve to cover losses? What if tenant stops paying and you cannot evict for several month - how will you cover your mortgage?

tbs624

OP - as Werdnal says, the answer to your query is "no", however, you can carry a loss on your property rental forward to the following year.

Google "HMRC" and "Property Income Manual" and SA105 plus related help pages

Welcome as a newbie btw

anselld

Doogle2 wrote: »

I'm looking to get my 1st BTL. My calcs indicate I'll get about £50 profit per month (based on my investment) which is not alot considering it could easily be wiped out with a big service repair.

However, I shouldnt pay any tax on this as the interest on the mortgage, agent fees and insurance costs will provide enough tax relief.

My question is, will the tax relief spill over to my own salaray and reduce my overall tax burden?

E.g. Say annually I'm earning PAYE £50k, rental yield is £600, tax relief expence (mortgage interest, agent fees, insurance) is £2000. Would this mean that £1400 of my salary would not be taxable, which effectively gives me a rebate of £560?

These figures look odd.

Income minus expense equals profit.

You pay tax on profit.

So if 600 per year is profit you pay tax on that.

You seem to be trying to take off expenses again which would be totally incorrect.

antrobus

Doogle2 wrote: »

I'm looking to get my 1st BTL. My calcs indicate I'll get about £50 profit per month...... rental yield is £600, tax relief expence (mortgage interest, agent fees, insurance) is £2000. ..

An income of £600 and expenses of £2,000 equates to a loss of £1,400. Where does this '£50 profit per month' come from?

googler

antrobus wrote: »

An income of £600 and expenses of £2,000 equates to a loss of £1,400. Where does this '£50 profit per month' come from?

The £600 'yield' is the annual 'profit' based on £50 per mth for 12 mths.

It's unclear what the mthly rental income will actually be.

Doogle2

Thanks for all your replies.

I dont have my calcs to hand right now, but to clarify some of the points, the £50 yield per month is after factoring mortgage, agency fee, gas inspection, insurance, maintenance (@ 1% rental). So it what I have left after factoring my expected expenses and a little for maintenace and repairs. So the yield in my case is the profit over 12 months. Appolgies if I got the terminology wrong.

I recall the market rate (based on rightmove.com) to be about £450 PM, so I estimated £415 and the morgate to be about £225 over 30 years on a repayment mortgage.

My gut feeling is to wait for 2013 as house prices should drop more, but I dont want to miss out on any opportunities.

Doogle2

Anselld, you're right, the figures I put dont look right. It was late when I posted so it was probably a typo, however the principle of tax relief was what I was after and I think the above answers tell me what I need to know.

I do need to investigate quite a bit more before I jump in, so 2013 could be a likely time to start.

whalster

Just to echo the above read as muchas you can , keep your rent a little lower than others and it keeps people in longer .Join the RLA for advice and help once you have done all these you will be in a good position to save atleast 10% tax, its the letting agent tax that will eat up your earnings from the property month after month after month
Join a Landlord group there is plenty of help for private landlords out there

ILW

whalster wrote: »

Just to echo the above read as muchas you can , keep your rent a little lower than others and it keeps people in longer .Join the RLA for advice and help once you have done all these you will be in a good position to save atleast 10% tax, its the letting agent tax that will eat up your earnings from the property month after month after month
Join a Landlord group there is plenty of help for private landlords out there

Letting agent tax??

heretolearn_2

In your calculation you are trying to count the expenses twice. first by taking them off the income to leave you £600 'profit', and then again off your tax bill.

It's quite a simple calculation really.
Total income from the let (NOT the profit) minus the allowable expenses, gives your profit, which is taxable.

So if you are anticipating a rental income of £5400, you declare that as the income from the property. Then you declare the allowable expenses and one thing you are getting very wrong there is in deducting the whole of the mortgage. Only the interest part of a mortgage is an allowable expense. Which you've totalled up with the other expenses to be £2000 a year. Leaving you £3400 annual profit. Not your £600..

You'll be paying tax on the £3400.

Sorry, I know it sounds nice, get a free house all paid for PLUS somehow you were hoping to pay less tax on your job (not sure where you got that idea from) but it doesn't work that way.

Tax relief - if you run a business (which btl is) and it makes a loss, then to some extent you can get a tax refund from tax paid in your job. But the HMRC won't accept a loss year after year. And it's still nothing to do with some sort of special btl tax relief?

Where are you getting this tax relief idea from?