New Landlord, Renting out home. Worried About Tax of Interest only vs Repayment

Alias_Omega

anselld wrote: »

So you ensured that you made no profit.
What is the point of owning a BTL which makes no profit?

Some people make the strangest decisions to avoid paying tax!

Improve tenant quality of life, and repairs to property (new fencw, gate, brickwork repointing, window repairs etc).

Its not all about the cash!

jjlandlord

Alias_Omega wrote: »

Its not all about the cash!

Unless you run a business...

Alias_Omega

Id rather 1 happy 5 yr tenant, than 5 x1yr tenants

dimbo61

Could you buy the property as tenants in common !
Wife has 95% and you have 5%
Speak to solicitor about this

chrispepper1989

pcgtron wrote: »

If it's renting for 700 a month then the yearly gross figure is £8400
Deduct the interest on the mortgage £217 x 12 = 2604
Deduct other expenses - 10% letting agent fee (if you have one) 70 quid a month = £840. Gas safety certificate = about £50, other misc £100 for ease = 8400 - 2604 - 840 - 50 - 100 = £4806 that you need to pay tax on.
Add this to your 29k day job and you have 33806 which means you don't pay tax at 40% so approx £961 worth of tax to pay.

Obviously, these are rough figures and would go up or down depending on expense levels etc.

Thanks for your detailed reply pcgtron

I thought the tax bracket was £32,010? wouldnt I pay 40% on £1,796? i suppose that's not the end of the world but it seems a bit daft, especially as she would take the lions share of managing it. Also if i get a pay rise to 31 or something that would be a bit of a kicker...

The mortgage is in my name though so presumably it would be a no go anyway? unless i donated the house to my wife at which point it feels a bit dirty

@G_M thanks for the links, some good reading material for me there

@dimbo61 what do you mean? Its not a residential so I doubt we could...unless i am misunderstanding you.

@Alias_Omega, i'm guessing that was just for the first year? makes sense if the work is needed, especially if you get the next 4 years as well . I know we will want to put in a stair banister and some other safety things, would these count as maintenance?

@everyone, sorry for the radio silence, had a lot going on at once, cheers everyone :beer:

AdrianC

chrispepper1989 wrote: »

I thought the tax bracket was £32,010?

Yes, but the first £32,010 of _taxable_ income, after your personal allowance has been taken off. So, if you're on the base allowance of £9,440, then £9,440 you pay nothing, £9,440-£41,450 you pay 20%, over that you pay 40%. The numbers may, of course, change for 2015/16 - and we'll know in an hour's time...

chrispepper1989

AdrianC wrote: »

Yes, but the first £32,010 of _taxable_ income, after your personal allowance has been taken off. So, if you're on the base allowance of £9,440, then £9,440 you pay nothing, £9,440-£41,450 you pay 20%, over that you pay 40%. The numbers may, of course, change for 2015/16 - and we'll know in an hour's time...

ahh right, is there anyway i can take advantage of my wifes non taxable allowance? as she will soon be earning nothing?

I read on the telegraph:

"NCOME TAX AND OTHER ALLOWANCES
Nick McBreen of Worldwide Financial Planning said: "Both married couples and unmarried ones can reduce their overall tax bill by equalising their estates to make the most of all their allowances, whether it be for CGT, IHT, income tax or Isas. This is done by the party holding more assets gifting some of them to the party paying tax at a lower rate or not making use of their tax allowances at all. But while married couples can do this without creating a liability for inheritance tax, unmarried couples cannot, meaning if the giving partner dies within seven years of the gift it will fall within his or her estate."

But that to me sounds very dodgy, sounds legal but loopholey...there is a great law in hong kong that i stumbled across where you can apply for joint income assessment:

"Joint Assessment

Joint assessment can be advantageous for a married couple if the assessable income of one spouse is less than his or her tax allowance. If this is the case, you and your spouse should each complete a Tax Return - Individuals (BIR60) and elect joint assessment in part 4.4 and both you and your spouse have to sign in part 9 of each tax return. The election must be made on a yearly basis.

Under joint assessment, the incomes of the couples will be aggregated and the married person’s allowance or other allowances that the couple is eligible for will be deducted from the couple’s joint total income. This could result in some tax savings, and a notice of assessment will be issued. However, if joint assessment does not result in less tax, each spouse will receive a separate notice of assessment"

sadly i do not think we have an equivalent law here

00ec25

chrispepper1989 wrote: »

ahh right, is there anyway i can take advantage of my wifes non taxable allowance? as she will soon be earning nothing?

you are married so fall into specific tax law governing how property income is split

I haven't read every post so correct me if this is wrong but at the moment you are the sole owner of the property therefore it makes a huge difference because you cannot simply class the income as hers, even if she spends vast hours per day managing the property

as a poster above suggested she will need to become an owner. Naturally that may or may not affect the mortgage

as a married couple under tax law, income from:
- property owned as joint tenants is split 50/50. There is no other option
- property owned as tenants in common may be split in different proportions provided the actual split is notified to HMRC on Form 17

making her an owner will have no immediate impact on CGT as transfers between spouses are on a no gain no loss basis. If the property was previously your own home then any transfer to her could impact the eventual CGT. If on the other hand it has always been a BTL then a transfer has no long term impact as she acquires her share at your original cost so the final taxable gain is the same for both of you

chrispepper1989

00ec25 wrote: »

you are married so fall into specific tax law governing how property income is split

I haven't read every post so correct me if this is wrong but at the moment you are the sole owner of the property therefore it makes a huge difference because you cannot simply class the income as hers, even if she spends vast hours per day managing the property

as a poster above suggested she will need to become an owner. Naturally that may or may not affect the mortgage

as a married couple under tax law, income from:
- property owned as joint tenants is split 50/50. There is no other option
- property owned as tenants in common may be split in different proportions provided the actual split is notified to HMRC on Form 17

making her an owner will have no immediate impact on CGT as transfers between spouses are on a no gain no loss basis. If the property was previously your own home then any transfer to her could impact the eventual CGT. If on the other hand it has always been a BTL then a transfer has no long term impact as she acquires her share at your original cost so the final taxable gain is the same for both of you

Thank you for the detailed reply and @AdrianC thank you for yours as well!

So from AdrianCs comment it would appear that there is actually no benefit to it being claimed in my Wifes name in terms of tax brackets is that correct?

However there would be some benefit as it would class as her non-taxable income.

BUT as 00ec25 says, unless she was the owner of the property there is no way i could take advantage of it. And judging by your comment there is no disadvantage providing the mortgage lender would accept? Which I don't think they would do, as according to my mortgage adviser, they would only do it in my name as i have the current income....

AdrianC

chrispepper1989 wrote: »

BUT as 00ec25 says, unless she was the owner of the property there is no way i could take advantage of it. And judging by your comment there is no disadvantage providing the mortgage lender would accept? Which I don't think they would do, as according to my mortgage adviser, they would only do it in my name as i have the current income....

Joint names? Of course, the legal fees may outweigh the tax benefits.