trying to work out how much tax on renting a house

March2012

i read this:
"What tax rate will I pay?
Your rental profits are taxed at the same rates as income you receive from your business or employment – 20% or 40%, depending on which tax band the income falls into."
what if it is your only income at the mo?

read this:
Between PA and PA+£32,010
For most, £9,440 to £41,450
20%
Between PA+£32,011 and £150,000
For most, £41,451 to £150,000

i also have some credit card debts and they were funding my partners business until he fell ill. as i read you can offset debt from other businesses against rental income . how would this work. thanks everso!

zygurat789

March2012 wrote: »

i read this:
"What tax rate will I pay?
Your rental profits are taxed at the same rates as income you receive from your business or employment – 20% or 40%, depending on which tax band the income falls into."
what if it is your only income at the mo?

read this:
Between PA and PA+£32,010
For most, £9,440 to £41,450
20%
Between PA+£32,011 and £150,000
For most, £41,451 to £150,000

What matters is your income during the whole of the tax year.
There is then a restriction on the PA on incomes from £100,000 to 118,880 which gives an effective rate of 60%, and on incomes over £150,000 the tax rate is 45%

March2012

would you know about this...just trying to find out if worth even renting out as would like to get this sorted.
i also have some credit card debts and they were funding my partners business until he fell ill. as i read you can offset debt from other businesses against rental income . how would this work. thanks everso!

zygurat789 wrote: »

What matters is your income during the whole of the tax year.
There is then a restriction on the PA on incomes from £100,000 to 118,880 which gives an effective rate of 60%, and on incomes over £150,000 the tax rate is 45%

John_Pierpoint

We need more information about your "partner" and the partner's relationship with the business (director of a company of sole trader, what does the business do?)

Is this a partnership in legal business terms (rather than in personal colloquial/legal terms) ?

Landlords are taxed on profit (not income), there may be expenses (such as mortgage interest) that you can set against the rent. However but being a landlord is not the same as running a business (unless it is a special case like rent-a-room, Hotel, B&B or holiday lets).
What sort of property are you intending to let out?

CLAPTON

if you provide some outline details we can help you

noisla

RENTAL INCOME

If you are renting out rooms in your own house (while you live there), then the rent-a-room scheme may exempt from tax some or all of your rental receipts.

If you are renting a separate property, then you first need to calculate the profits of this "rental business" as a standalone business. As John_Pierpoint says, you are taxed on the profit only. So you need to know the rules of calculating profit (which are laid down in tax legsialtion, but probably better understood on the HMRC website). The HMRC manuals start here:
http://www.hmrc.gov.uk/manuals/pimmanual/pim1020.htm

Broadly, it is rental income less running expenses (e.g. repairs, letting agent costs - NOT buying new capital items like furniture or a new roof). However, knowing the exact rules can help you reduce your taxable profits (and thus your tax bill) e.g. you can get expense deductions for "wear and tear" or opt to depreciate capital expenditure.




Other considerations:

• You should notify HMRC when you start your rental business - note the relevant forms and deadlines before embarking.
• Also, renting out a house may mean that you lose the right to call this your "principal private residence", and thus when you sell it, you may have to may tax on any capital gain you make on the property. (It is not clear from your post whether this is already not your principle residence.)

YOUR OVERALL TAX POSITION

After that, as an individual, you need to work out your total taxable income for the year. This means compiling all your income sources over the entire tax year. As well as your rental profits, you may have a job (employment income), pensions or benefits, profits from another business, or other items.

Your total taxable income is then taxed at the various rates you note in your post i.e. the first £9k or so is tax-free, the next £32k at 20%, and so on. If you are looking at the higher tax bands (40%/50%) then presumably you'll be able to afford a tax advisor to do all this for you! (And they may be able to apply the rules so effectively as to justify their fee by reducing your tax bill!)

YOUR PARTNER'S BUSINESS

This is where it could be complicated, and a lot more info is needed to advise.

If you are a business partner in the business (which you could be, even without a written partnership agreement and even if you are more a "silent partner" just providing funding), then you may need to consider you share of the profit or loss from this business. If it is a loss, then this could helpfully reduce your taxable income from other sources in that year, or be saved up to offset against taxable profits in future years.

Your involvement may be limited to providing funding on your credit cards and then the losses (i.e. interest payable) would be the "loss", to offset against your other taxable income. Generally you can't offset a debt with income - unless the debt is being written off... but even then probably wouldn't apply where you are lending to your partner... I am sure other people on this forum are more expert than me on these issues, but hopefully this provides an outline, so you can see why it is not straightforward.

I'd recommend you get proper advice. Calling HMRC may even be of help.