Renting - Profit & Tax...

gadgetboy00

Dear all,

I am considering letting my house as I am buying another.

We have been advised by a reputable local letting agent that our property will command £900 pcm.

Their fee is 10% i.e. £90 pcm.

Our mortgage is £194,000. £108,000 is repayment and £86,000 is interest only.

We are on the Nationwide BMR guaranteed 2% above base rate which is £606. If we obtain consent-to-lease this raises up to £785.

So if we have to pay £785 for the mortgage and get £900 pcm for rent where do I stand as regards income tax.

Can I factor in the letting agent fee as an expense?

e.g. £900 (rent) - £90 (letting agent fee) = £810 per month.

£810 - £785 (mortgage payment) = £25 per month profit.

Just not sure how it all works out.

paddedjohn

Not all the mortgage is deductible as an expense, only the interest part of it.

gadgetboy00

Can you illustrate what you mean by typing out an example based on the figures I have provided...

Many thanks

Guest101

Firstly dont pay the LA 90 quid a month to sit on their backside, are you mad?

Secondly, its the inetrest part of the mortgage payment is deductable, so around 40% of what your paying.

thirdly, do you know all the responsibilities that come with being a LL - dont rely on the LA to do/know all this.

zappahey

Say your £785 mortgage payment is broken down to £400 interest and £385 capital repayment, you can only deduct £400 from the income. So, using your figures:
£900 (rent) - £90 (letting agent fee) = £810 per month.

£810 - £400 (mortgage interest) = £410 per month profit

kingstreet

£194,000 mortgage x 4% (Nationwide BMR + 1.5% loading) = £7,760pa which can be offset against the rental income for tax purposes.

Take professional advice if you are unclear about your obligations.

G_M

Now read the post below, and all the links within it:

New Landlords (information for new or prospective landlords)

pogg000

And don't forget that VAT may/will be added to the letting fee

ognum

Letting agents fees are negotiable like EA selling fees, don't pay 10% and read Allagents to get a good one from both tenant and landlords perspective

onlyroz

Also, don't trust that rental figure. We were told that our flat could command £1000-1100 pcm. We eventually found a tenant willing to pay around £800.

Werdnal

Plus, that rental figure is when tenants are actual paying rent! Factor in mortgage payments over 12 months a year, against recommended rental income of 10 months a year (average 2 month void).

Then remember tenants can stop paying and it can take you a court order to remove them even if they get into arrears.

Also, a hefty repair bill can wipe out several month's rent in one hit.

Can you afford to cover your expenses as a LL, your mortgage on the rental and your own living expenses/mortgage if there was NO rent coming in for a few months?!

The rental income the agent is suggesting is fine IF/WHEN you actually receive it. I suggest you thoroughly read through the post linked by GM above, and all the links it contains. Many LLs look at the £££ they will get in rent, and forget the bigger picture. S-h-1-t happens in life and there is little you can do to prevent it, but atleast if you research everything you need to know to become a LL it won't be a surprise if it happens to you!