Tax on a rental property?

GSBrown123

Hello all

First of all apologies if this question is fairly elementary but I have never been a landlord or even completed a tax return.
I'd be grateful if someone can confirm if my assumptions for tax on rental properties are correct and if there's anything else that I should consider.

EXAMPLE FIGURES

Income from rent = £650pcm
Mortgage repayment = £250pcm
Mortgage interest = £100pcm
Therefore total mortgage payment = £350pcm
Insurance = £20pcm
Letting fees = £100 one off
Repairs = £400 year

I am the sole owner of the property.
I have a job (PAYE) and pay 40% tax.

Total rent income for year 650 x 12 = £7800/yr
Total out goings = total mortgage 350 x 12 + insurance 20 x 12 + letting fee 100 + repairs 400 = 4940
Gross profit = 7800-4940 = 2860/yr

Tax deductions = interest on mortgage 100 x 12 + Fees 100 + repairs 400 = 1700/yr
I believe the £250pcm mortgage repayment is not tax deductible.

Taxable profit = Total rent income for year £7800 - Tax deductions £1700 = £6100
Tax @ 40% = £2440/yr

Take home = Gross profit 2860 - Tax @ 40% £2440 = £420/yr


I haven't got a clue if the above is correct???

Are there any further tax deductions that I could take?


Thanks

jackomdj

It is only the interest element of the mortgage that is accountablefor tax purposes and to work out you income.

The capital element is buying your asset (house), which you can sell at some point.

Your annual gas certificate cost can be offset. Any motor expense to do with it.

phill99

Not sure if your calculation is correct. Somebody will be along to correct it.

You can also allow for costs such as stationery, stamps, phone calls, mileage, landlords gas certificate.

theartfullodger

You seem to be assuming you will always get the rent paid (ie always have a tenant, always have a tenant who pays...)

Err.... revise the business plan??

G_M

GSBrown123 wrote: »

EXAMPLE FIGURES

Income from rent = £650pcm
Total rent income for year 650 x 12 = £7800/yr
[STRIKE]
Mortgage repayment = £250pcm
[/STRIKE]Mortgage interest = £100pcm
[STRIKE]Therefore total mortgage payment = £350pcm
[/STRIKE]Insurance = £20pcm
Letting fees = £100 one off
Repairs = £400 year
other costs = ???

Total tax deductable out goings = total mortgage interest 100 x 12 + insurance 20 x 12 + letting fee 100 + repairs 400 = 1844

Gross profit = 7800-1844 = 5956/yr

I am the sole owner of the property.
I have a job (PAYE) and pay 40% tax.

Tax @ 40% = £2382/yr

[STRIKE]
Tax deductions = interest on mortgage 100 x 12 + Fees 100 + repairs 400 = 1700/yr
I believe the £250pcm mortgage repayment is not tax deductible.
[/STRIKE]
[STRIKE]
Taxable profit = Total rent income for year £7800 - Tax deductions £1700 = £6100
[/STRIKE]

Take home = Gross profit 2860 - Tax @ 40% £2440 = £420/yr

Are there any further tax deductions that I could take?
Yes

Thanks

See HMRC site

anselld

You shouldn't really be making "assumptions" as far as tax is concerned.
You should consider getting an accountant if you don't know the facts; it will probably save you money.

00ec25

G_M wrote: »

See HMRC site

your crossing out is misleading...

the correct position for the first year only is:

gross rental income 7,800
less eligible costs for tax purposes
mortgage interest (100 x 12) 1,200
insurance (20 x 12) 240
fees 100 x 1 = 100
repairs (see note) 400
total eligible costs 1940
taxable gross profit 7800 -1940 = 5860
tax payable 5860 x 40% = 2344

actual profit in cash terms
taxable profit - tax - mortgage capital repayment
5860 - 2344 - (250x12) = 516 positive cashflow PER YEAR - by the time you add in other costs it's hardly worth bothering with this business venture as it's practically break even so wholly reliant on capital appreciation for its only prospect of a return on the capital employed. As artful says , time for a new business plan. If your capital repayment is 250pcm then for a typical 25 year term you have borrowed 75K and presumably put down 25% deposit so the property cost 100K. A return of £516 per year on 25k investment is 2% = pathetic

NOTES
1. Repairs - you must actually spend £400 for this to be eligible and it must be on repairs not improvements and will obviously be a different figure each year
2. Fees £100 - as you say this is one off then clearly the taxable profit will be different in subsequent years
3. other eligible costs could be available to further reduce taxable profit eg: gas safety certificate

holly_hobby

Travel costs only if directly in respect of the business (ie not consequential of other travel arrangements).

You say you are the sole owner, are you married ?

If so, and to mitigate tax, you may want to explore transferring the property into joint names (referred to as a Transfer of Equity), and subject of course to your spouse meeting the status requirements of the lender, with the propety held under a Tenants In Common arrangement, with ownership weighted in the name of your spouse (assuming they aren't also a 40%'er, and/or the net rental income won't tip the majority of the receipts into the 40 band).

If no spouse (or no partner you wish to include in the business), and the rental income you've noted is not undervalued or likely to greatly increase in the short to medium term, I do agree that unless your pch is for a longterm investment vehicle (which don't forget property is typically an ill-liquid asset), there may well be more attractive returns achieved elsewhere on a 25k deposit.

Hope this helps

Holly x

ognum

holly_hobby wrote: »

Travel costs only if directly in respect of the business (ie not consequential of other travel arrangements).

You say you are the sole owner, are you married ?

If so, and to mitigate tax, you may want to explore transferring the property into joint names (referred to as a Transfer of Equity), and subject of course to your spouse meeting the status requirements of the lender, with the propety held under a Tenants In Common arrangement, with ownership weighted in the name of your spouse (assuming they aren't also a 40%'er, and/or the net rental income won't tip the majority of the receipts into the 40 band).

If no spouse (or no partner you wish to include in the business), and the rental income you've noted is not undervalued or likely to greatly increase in the short to medium term, I do agree that unless your pch is for a longterm investment vehicle (which don't forget property is typically an ill-liquid asset), there may well be more attractive returns achieved elsewhere on a 25k deposit.

Hope this helps'





This may not be possible if you have a mortgage!

GDB2222

If you let furnished, you can deduct 10% of the gross rent for tax purposes.

holly_hobby

ognum wrote: »

This may not be possible if you have a mortgage!

As I highlight in the 3rd paragragh, if the spouse meets the lenders status criteria (ie - no adverse, because the OP is already meeting any min income requirements), its entirely possible and a protactive way to assist in reducing tax exposure under the business (assuming spouse is BRT or lower, which I've already discussed ).


Hope this helps

Holly