BTL tax changes for simpletons (me)

ognum

havingaball74 wrote: »

Fair enough. Point taken. And, ironically, I am still baffled!

Would it be worth talking to an accountant?

theartfullodger

havingaball74 wrote: »

Fair enough. Point taken. And, ironically, I am still baffled!

Then perhaps you can't afford to be a B2L landlord.

However, if you want to go into a business where you won't be able to work out if you are making a profit, after tax, or not, be my guest.

bike_saving_expert

Hi I have read some of the changes and have interpreted in the following way as I am a low earner (not higher rate) the changes in BTL laws mean I can now earn rental income tax free.

When i say tax free I mean i pay at 20% and then reclaim at 20% is this correct ? This assumes that my rental income does not increase my income over the basic rate band .

Thanks

booksurr

bike_saving_expert wrote: »

Hi I have read some of the changes and have interpreted in the following way as I am a low earner (not higher rate) the changes in BTL laws mean I can now earn rental income tax free.

When i say tax free I mean i pay at 20% and then reclaim at 20% is this correct ? This assumes that my rental income does not increase my income over the basic rate band .

Thanks

yes, read example last post here
https://forums.moneysavingexpert.com/discussion/comment/69440361#Comment_69440361

bike_saving_expert

Ok

so new potential understanding of situation in 2020

PAYE Income 21600

Rental income 850 PCM 10200 annual 8500 assuming 10 months

I/O mortgage 150k @ 4% 500 PCM 6000 PA

Rental profit (10 months) is 8500-500 = 8000

Rental profit (12 months) is 10200-500 = 9700
PAYE+Rental profit

8000+19000 = 27000 = profit taxed at 20%

12 months =4400

tax due on rent profit

8000x0.2= 1600

9700x0.2=1940

Tax rebate

6000x0.2= 1200

effective tax =400

effective tax =740
10 months rent scenario

10x850= 8500-500=8000-6000-400 =1600 profit

12x850=10200-500=9700-6000-740 =2960 profit


this feels very ambitious and likely wrong please correct me where wrong i need to get my head round how this works thanks

HappyMJ

bike_saving_expert wrote: »

Ok

so new potential understanding of situation in 2020

PAYE Income 21600

Rental income 850 PCM 10200 annual 8500 assuming 10 months

I/O mortgage 150k @ 4% 500 PCM 6000 PA

Rental profit (10 months) is 8500-500 = 8000

Rental profit (12 months) is 10200-500 = 9700
PAYE+Rental profit

8000+19000 = 27000 = profit taxed at 20%

12 months =4400

tax due on rent profit

8000x0.2= 1600

9700x0.2=1940

Tax rebate

6000x0.2= 1200

effective tax =400

effective tax =740
10 months rent scenario

10x850= 8500-500=8000-6000-400 =1600 profit

12x850=10200-500=9700-6000-740 =2960 profit


this feels very ambitious and likely wrong please correct me where wrong i need to get my head round how this works thanks

It's close enough. I think you've underestimated your annual expenses.

How much is the house worth?

Assuming based on the rent being £850 a month it's worth around£200,000 you would have £50,000 of equity you could cash out. That money could be invested into current accounts earning at least 3% interest (from next year £1,000 of that is tax free). You would earn £1,500 and pay £100 in tax for a £1,400 profit without doing anything at all.

So worst case scenario being a landlord you would be £200 a year better off than putting the money in the bank. Is it worth the effort?

bike_saving_expert

correct on valuation

situation is theoretical as this would be a let to buy as i need to move. i am taking a longer term view in that I would like to keep the property on the assumption that over the longer term the property would increase in value (south west). Going forward I would attempt to hit 60% LTV and maintain that level of equity.

waveneygnome

CAPITAL APPRECIATION...............many of the BTL landlords I know are just happy for the properties to 'wash their face' with rental income covering expenses......and they are in it for the longer term of capital growth.

booksurr

waveneygnome wrote: »

CAPITAL APPRECIATION...............many of the BTL landlords I know are just happy for the properties to 'wash their face' with rental income covering expenses......and they are in it for the longer term of capital growth.

you miss the point. The new rules mean washing the face will be much harder as it is very possible you end up paying income tax creating a negative cashflow due to the fact that you are taxed on your notional profits excluding the interest costs and only get relief on part not all of all your interest cost if you are not a basic rate taxpayer

ognum

booksurr wrote: »

you miss the point. The new rules mean washing the face will be much harder as it is very possible you end up paying income tax creating a negative cashflow due to the fact that you are taxed on your profits but do not get relief on all your interest cost

75% of the LL that I know have no mortgages!