Calculating Profit/Loss on Rental Property

londonman81

I'm trying to calculate the final P/L figure from the perspective of a landlord on a rental property but am having some difficulty in knowing whether I am applying the various components of the calculation correctly.

Here is a example showing the current P/L calculation I have:-

Income

Rent per month 1500



Costs

Mortgage Interest 400
Bills (council tax, water, gas, elec, Broadband) 150
Service Charge 40
Landlord Insurance 20
Accountant Fees 25
Boiler Insurance 23
Appliances Insurance 13
Total 671



Non-Deductible Costs
Mortgage Capital Payment 350

10% Wear & Tear (10% of income minus bills) 135

Taxable Profit (Income minus Costs minus 10% Wear & Tear) 829

Tax Amount @ 40% 331.60

Profit after Tax before Mortgage Capital Payment (Taxable Profit minus Tax Amount) 470.40

Profit/Loss after Tax and Mortgage Capital Payment (Profit after Tax minus Mortgage Capital Payment 120.40



My question are:-

1. Am I calculating and deducting the 10% Wear & Tear Allowance correctly?

2. Is 120.40 the correct P&L figure from the perspective of the landlord? i.e. is that the correct 'money in pocket' number considering that the capital component of the mortgage still needs to be paid at the end (which the taxman does not include in his calculation).

3. Is there a freely available spreadsheet which can do this calculation correctly.

The aim of all this is to try and calculate the correct breakeven point if I were to rent out a property, in advance of actually doing so.

Thanks!

P.S This assumes a 40% tax rate payer and all other permissions have been granted.

jjlandlord

Is it a furnished property? 10% wear and tear only applies to furnished properties.
I think your calculation of that allowance is correct.

Capital repayments are not a cost at all and don't show up on the P&L statement.

Profit is then: 1500 - 671 = £829
And taxable profit is: 1500 - 671 - 135 = £694
(all monthly)

Thrugelmir

Do the calculation on an annual basis as well. To be prudent you should allow void periods as well. So well worth doing some what if's.

casperlarue

londonman81 wrote: »

I'm trying to calculate the final P/L figure from the perspective of a landlord on a rental property but am having some difficulty in knowing whether I am applying the various components of the calculation correctly.

Here is a example showing the current P/L calculation I have:-

Income

Rent per month 1500


Costs

Mortgage Interest 400 ok
Bills (council tax, water, gas, elec, Broadband) 150 why are you paying these bills and not your tenant?
Service Charge 40
Landlord Insurance 20
Accountant Fees 25
Boiler Insurance 23
Appliances Insurance 13
Total 671



Non-Deductible Costs
Mortgage Capital Payment 350 no, not a deductable allowance

10% Wear & Tear (10% of income minus bills) 135 only if you are renting a furnished property

Taxable Profit (Income minus Costs minus 10% Wear & Tear) 829

Tax Amount @ 40% 331.60

Profit after Tax before Mortgage Capital Payment (Taxable Profit minus Tax Amount) 470.40

Profit/Loss after Tax and Mortgage Capital Payment (Profit after Tax minus Mortgage Capital Payment 120.40



My question are:-

1. Am I calculating and deducting the 10% Wear & Tear Allowance correctly? see above comment

2. Is 120.40 the correct P&L figure from the perspective of the landlord? i.e. is that the correct 'money in pocket' number considering that the capital component of the mortgage still needs to be paid at the end (which the taxman does not include in his calculation).

3. Is there a freely available spreadsheet which can do this calculation correctly.

The aim of all this is to try and calculate the correct breakeven point if I were to rent out a property, in advance of actually doing so.

Thanks!

P.S This assumes a 40% tax rate payer and all other permissions have been granted.

See comments above. If you are paying an accountant why don't you let them do this for you?

londonman81

jjlandlord wrote: »

Is it a furnished property? 10% wear and tear only applies to furnished properties.
I think your calculation of that allowance is correct.

Capital repayments are not a cost at all and don't show up on the P&L statement.

Profit is then: 1500 - 671 = £829
And taxable profit is: 1500 - 671 - 135 = £694
(all monthly)

Thanks JJLandlord - yes it will be a furnished property.

The number I am trying to calculate is the personal P/L for me i.e. after I have paid the capital component of the mortgage as that is still a cost I have to bear and, therefore, factor in. I am trying to calculate the 'real' profit, not what the taxman thinks i am making because he doesn't factor in the capital component in his calculations.

Is there somewhere where I can get a spreadsheet which does this calculation? or at least ensure that I have calculated the 10% Wear & Tear correctly?

Annie1960

The capital component is on the balance sheet, not the P&L.

jjlandlord

londonman81 wrote: »

I am trying to calculate the 'real' profit, not what the taxman thinks i am making because he doesn't factor in the capital component in his calculations.

Well that's my point: capital repayments are not a cost at all, irrelevant of HMRC, and are part of your 'real' profit.

But of course they do impact your cash flow, because you end up with less cash.

So in accounting terms they do not show up on the P&L statement.
They would show on the cash flow statement, and also on the balance sheet as decreased liability.

As such if you want to include them what you are doing really is working out your cash flow.

You might call that semantics, but it is not and I think is important to understand

londonman81

jjlandlord wrote: »

Well that's my point: capital repayments are not a cost at all, irrelevant of HMRC, and are part of your 'real' profit.

But of course they do impact your cash flow, because you end up with less cash.

So in accounting terms they do not show up on the P&L statement.
They would show on the cash flow statement, and also on the balance sheet as decreased liability.

As such if you want to include them what you are doing really is working out your cash flow.

You might call that semantics, but it is not and I think is important to understand

Just to clarify - I have listed the capital mortgage payment under 'Non-deductible costs' and the number is not used anywhere in my calculation until right at the end when I calculate the 'real' profit i.e. the profit personal to me. So I think we are on the same page..?

Also - if i have a lodger, can I offset expenses beyond £4250 tax free allowance? If so, how are they apportioned? If there are two rooms but one is much larger and hence could have two lodgers (a couple) while the smaller room is just the owner , can two-thirds of the expenses be apportioned to the lodgers and hence offset against the income from them?

Thanks

londonman81

casperlarue wrote: »

See comments above. If you are paying an accountant why don't you let them do this for you?

That's my point - I am not paying an accountant at the moment as I have not embarked on the letting as yet.

The accountant fees entry in the costs is a monthly estimate of that cost as and when I go ahead.

What I am trying to do is get some idea of the actual P/L I will incur before I go ahead with it.

Thanks

Pixie5740

londonman81 wrote: »

Just to clarify - I have listed the capital mortgage payment under 'Non-deductible costs' and the number is not used anywhere in my calculation until right at the end when I calculate the 'real' profit i.e. the profit personal to me. So I think we are on the same page..?

Also - if i have a lodger, can I offset expenses beyond £4250 tax free allowance? If so, how are they apportioned? If there are two rooms but one is much larger and hence could have two lodgers (a couple) while the smaller room is just the owner , can two-thirds of the expenses be apportioned to the lodgers and hence offset against the income from them?

Thanks

Stop the bus for a minute. Are you letting a whole property to a tenant or tenants, or are you just letting rooms in the property in which you live to lodgers?

Annie1960

http://www.hmrc.gov.uk/startingup/help-support.htm

If you're planning for a new business, HMRC provides help and support with this.