BTL tax changes for simpletons (me)

booksurr

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% No, you have double counted the 8,000

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

not quite right, you have double counted your rent in calculating your total taxable income to start with...

your taxable income for the purpose of deciding what tax bracket you fall into should be shown as:
PAYE income (21,600)
minus personal allowance, keeping it at 15/16 rate (10,600)
plus gross rental income (8,000)
minus non mortgage related rental costs (I assume that is the 500 you show)
= 18,500 total taxable income pa.

On that basis you are miles away from the higher rate tax threshold currently set at 41,365

your calculation of the tax payable on the rent element is however correctly calculated as either 400 or 740 depending on your 10 or 12 month assumptions

I suggest you try your numbers in the RLA calculator - but do bear in mind they are using the 14/15 allowances not the current year allowances I have used above

booksurr

ognum wrote: »

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

agreed, mine were paid off long ago

ognum

booksurr wrote: »

agreed, mine were paid off long ago

So nothing changes!