Tax on my rented houses?

J0SH

Hi everyone, not sure if i should have posted in here or the cutting tax forum, so sorry if this is the wrong section.

I want to know if i am right with my thinking on my tax.

I have a house that i rent for £650 per month so as far as i know the tax works out as this:

Rent x12 = £7800
Mortgage intrest =£3200

so 7800-3200= £4600

then - 20% for tax. 4600-20%=£3680

is that correct?


Now my next question is what happens when i rent my next house out (as i just bought a new one so going to rent my current house and live in the new one).

I hope to rent my house for £700 per month but the mortgage is £755 so i will be making a loss, do i have to pay any tax on it?

And also if i rented with an estate agent for £700 pm and they charged 10% fee pm (£70pm/£840 per year) could i claim that back against my tax so even tho i am making a small loss on this house id be paying less tax on the other one, so taking more money home after tax every year? If that makes sense?

Hopefully somebody can understand what i am saying and can explain this all to me!

googler

You can also deduct legitimate expenses in running your BTLs before calculating profit, and hence tax liability. Details at HMRC website.

If you make a profit on houses A & B, but a loss on C, then I believe you can offset the loss against A & B's profit.

EA fees are a legitimate business expense and can be offset against your income when calculating tax liability.

Fire_Fox

Loads of threads on this if you run an advanced search. Do you have consent to lease from your lender? You can only write off the mortgage interest against tax not the full mortgage.
http://www.hmrc.gov.uk/manuals/pimmanual/

G_M

Since you are expanding your portfolio, you really need to get a good grasp on this. A few tips from a public forum is not the way to go.

* get a good book on relevant area of tax and learn
* go on a course run by your landlords association and learn
* or don't learn and employ an accountant instead

I assume since you don't mention it that you are up to speed with the other aspects of letting, but just in case, here are some (public forum!) tips and links to resources for your research

New Landlords (information for new or prospective landlords)

J0SH

Hi thanks for the replies,

Yeah i do have consent to let on my current home.

Firstly are my sums correct?

House A
rent per year 7800
mortgage intrest per year 3200

7800(rent)-3200(mortgage intrest)=4600

4600 - 20% tax (920) =3680 take home

House B
rent per year 8400
mortgage intrest per year 2400

8400(rent)-2400(mortgage intrest)=6000

6000 - 20% tax (1200) =4800 take home


Total tax to pay on A+B = 2120

however estate agent fees per year for house B =840

so 2120-840=1280(tax to pay)

J0SH

G_M wrote: »

Since you are expanding your portfolio, you really need to get a good grasp on this. A few tips from a public forum is not the way to go.

* get a good book on relevant area of tax and learn
* go on a course run by your landlords association and learn
* or don't learn and employ an accountant instead

I assume since you don't mention it that you are up to speed with the other aspects of letting, but just in case, here are some (public forum!) tips and links to resources for your research

I think i will get an accountant. Right now im just wanting to get the approximate figures in my head. My friend who is an accountant did my last self assessment for me

G_M

No.

But your accountant will put you right. A public forum is NOT the place to get your tax returns validated/corrected/completed.

The sort of advice a forum like this is appropriate for is: consult an accountant.

googler

You were the one who asked about EA fees and losses, but then you give an example of two houses in profit .... hmm

However, would it simplify things if we boiled it down in broad terms to ;

Total Rental Income from all houses = £X
Total allowable deductions per HMRC = £Y

Total taxable income = X-Y, therefore

Tax = 0.2 * (X-Y)

I'm not an accountant, but I gather the allowances can include;

Mortgage Interest
Repairs
Travel costs to and from the properties
Professional Fees (EAs , Accountants etc)

...but the full list is on the HMRC website

If X-Y gives a negative number, you've made a loss and pay no tax this year, but if you make a profit next year, you can offset this year's loss against the profit next year. Consult an accountant for the full version

J0SH

G_M i fully understand this is not the place to get tax returns validated etc. and Im not asking anybody to do so.

I'm just asking if my sums are correct so i can get some rough figures in my head. As you say they are not could you please tell me where i am going wrong?

I thought it was your rent - your mortgage intrest then - your 20% for tax from that total and the reminder is your take home after tax(as i have done above) What i am getting wrong?

justjohn

You need to get your head round it all or go to an accountant.

You will have some overheads you have not included. You may also need to keep a record of somethings for cgt.

if you get you final profit figure, hmrc will work tax out..


The most complex thing is what you can and can't claim for.

If you don't claim for everything then thats your loss lol

It can be done yourself. However and accountant will keep you rite.

(your sums above do not take into account tax allowance)

Somerset

J0SH wrote: »

What i am getting wrong?

Total Rental Income £xxx
Less Allowable Expenditure :
Rent, rates, insurance, ground rents £xxx
Repairs, maintenance, renewals £xxx
Finance charges including interest £xxx
Legal & Professional £xxx
Other expenses £xxx
10% wear & tear (if furnished) £xxx

Net Profit or Loss £xxx

If loss, nothing to pay, if profit then the appropriate % rate.