tax on BTL

AnotherJoe

havingaball74 wrote: »

Thank you. Do you think that £525 a month rental income (with a mortgage of £45,000) is a good rental yield?

That's the wrong way to calculate it. You should calculate it on the whole value of the house. You have invested £110k, made up of £65,000 capital and a loan of £45,000. So you have invested both those sums. If you only consider the mortgage, you are ignoring what you could have done with the equity.

Otherwise if you weren't being a landlord, you could take that £110,000 and (say) invest it in the stock market, where you'd get roughly 4-5% long term and also can shelter it from tax. I would say after tax and expenses (and without doing any sums) you are probabiy looking at a similar return from this house, 4-5% at best.

Both approaches (investing or letting) have their own risks. Being a landlord is a lot more hassle in many respects. You can of course get the house price appreciation but ona house worth £110k that's probably not going to happen. One key difference is, risk, having one house is like investing your money not just in one sector, property, but in one share in that sector, let's say Barrats or Persimmon. Might be good, might be awful. Might have a great long term tenant, might have one that doesn't pay rent, needs evicting,trashes the place.

chucknorris

havingaball74 wrote: »

Thank you. Do you think that £525 a month rental income (with a mortgage of £45,000) is a good rental yield?

I don't mean this to sound nasty, I really don't. But if you can't work that out and form your own opinion on the matter, then that means that buying an investment property is not for you.

havingaball74

booksurr wrote: »

you asked about the new rules yet it appears you don't understand them because that is how it was calculated under the old rules...

I will ignore the transitional arrangements for the next 3 years as you can look them up yourself.

under the new rules....

gross income 37000 (you said 38k in your first post but hey ho!)
less pension 3500 (assuming that is the net amount deducted from your pay)
plus rental income 6,300
less non finance related rental costs (50+25) x12 = 900
less personal allowance 11,000

net taxable income 37,000-3500+6300-900-11,000 = 27,900
the higher rate threshold is 32,000 so on that taxable income you remain a basic rate taxpayer

tax payable 27,900x20%= 5,580
less mortgage interest relief (150x12) x 20% = 360
net tax payable = 5,220

under the new rules finance related rental costs are a tax REDUCER and are capped at the basic rate of 20%. They reduce the amount of tax you pay after you have calculated how much you owe. That is fundamentally different to the old rules where they were an eligible cost which reduced the size of your taxable income

I am trying to calculate the likely monthly tax I would pay so that I can work out how much I would earn from rent. How much tax would I be likely to pay?

booksurr

havingaball74 wrote: »

I am trying to calculate the likely monthly tax I would pay so that I can work out how much I would earn from rent. How much tax would I be likely to pay?

I have told you how much tax you are likely to pay (in ball park terms). I assume you can a work a calculator? It has a useful function called divide and there are 12 months in a year last time I looked.

You pay tax on rental profit once per year when you submit your tax return, so there is no such thing as how much you pay per month (unless you ask for your tax code to be adjusted to recover the property tax via deduction from your PAYE income)

The question you should be asking is how much profit will you make each month, not how much tax will you pay each month. The answer to that is in para 1 above.

havingaball74

Thanks booksurr. I know that I am being deeply irritating. I am due to exchange/complete tomorrow when selling my house to an investor but now I am doubting this and wondering whether to pull out. As you can appreciate, this is a stressful time.

csgohan4

do you know what it means to be a LL? void periods, evicting tenants, repair costs?


Gas safety checks, e.t.c


It is more stressful being a LL. Don't just see the income side of things, also the cost of this and time


To paraphrase GM :


* Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new protection (2015)

* Deposits: payment, protection and return

* Ending/renewing an AST: what happens when a fixed term ends? How can a LL or tenant end a tenancy? What is a periodic tenancy?

* Rent increases: when & how can rent be increased?

* New landlords: advice, information & links

* Letting agents: how should a landlord select or sack?

Alias_Omega

Im a landlord, have slightly lower mortgage than you..

When its good, its good. When its bad...you want to cry.

If you have a good tenant, and a good letting agent then its free munney!! but...you have to pay 12.5% of rental income to agent (as they deal with everything inc repairs).

If you have a bad tenant, the agent takes the tenants side and you (yes you!) need to repair any damage and chase agent to deduct from tenants deposit etc. Sometimes you just wash your hands of it and just do it because you want to move forward etc.

Its very easy...

1) We rent it for less. So £525 would be £480? Id rather 60 months rent at £480 than 46-48-52-54 months at £480. Tenant makes it a home, looks after it and you in a win-win situation. Tenant see's other properties more expensive and stays "forever".

2) Its not as expensive as it seems. Agent fee's vary against what they do. I dont deal with tenants. You only need a Gas Safety Check (£80-100 a year) and Landlord Insurance (£150 a year). Electrical safety checks are not required...however the property needs to be safe...!

3) Deductions. Work out what you get as income, add it up in excel. Then on the other side make a deductions side. You can ONLY!! claim for the Interest from the Mortgage. Then Insurance, Agent Fees, Gas Safety Checks, Maintenance and Repairs....plus!!! 10% for "Wear and Tear".

4) If you earn less than £2000. So a wise "landlord" would reduce the profit to less than £2000 per year, this means you don't need to register for Self Assessment, or Pay an accountant £200-300 to process it for you..

For us...it (1 property) gives breaks even...therefore every 17 years it gives us £40,000.

AnotherJoe

Alias_Omega wrote: »

Im a landlord, have slightly lower mortgage than you..

When its good, its good. When its bad...you want to cry.

If you have a good tenant, and a good letting agent then its free munney!! but...you have to pay 12.5% of rental income to agent (as they deal with everything inc repairs). So its not free then?

If you have a bad tenant, the agent takes the tenants side and you (yes you!) need to repair any damage and chase agent to deduct from tenants deposit etc. Sometimes you just wash your hands of it and just do it because you want to move forward etc.

Its very easy... The previous doesn't sound easy?

1) We rent it for less. So £525 would be £480? Id rather 60 months rent at £480 than 46-48-52-54 months at £480. Tenant makes it a home, looks after it and you in a win-win situation. Tenant see's other properties more expensive and stays "forever".
There's no guarantee just because you are cheap you'll get a better tenant or theyw ill stay for longer. Odds are better but not a cert.

2) Its not as expensive as it seems. Agent fee's vary against what they do. I dont deal with tenants. You only need a Gas Safety Check (£80-100 a year) and Landlord Insurance (£150 a year). Electrical safety checks are not required...however the property needs to be safe...!
If the agent deals with everything, they dont care if the tradesmen they call in costs far more than one you'd use in your own home, its not their money. That a extra but hidden cost on top of the agents fees. (and IME agents also defer many of the decisions back to the LL - do you want to get a new washing machine/boiler/cooker, which one, from who, do you want to repair? So you dont get rid of a lot of hassle by using them anyway.)

3) Deductions. Work out what you get as income, add it up in excel. Then on the other side make a deductions side. You can ONLY!! claim for the Interest from the Mortgage. Then Insurance, Agent Fees, Gas Safety Checks, Maintenance and Repairs....plus!!! 10% for "Wear and Tear". I believe wear and tear is on the way out in the new system?

4) If you earn less than £2000. So a wise "landlord" would reduce the profit to less than £2000 per year, this means you don't need to register for Self Assessment, or Pay an accountant £200-300 to process it for you.. All this hassle for £2k a year? £40 a week? is it worth it?

For us...it (1 property) gives breaks even...therefore every 17 years it gives us £40,000.

That £40k needs to be compared to what else you could have done with the money instead.
Over the past 17 years there has been the boon of high house price inflation, that is unsustainable, so the other perk of BTL is going to be greatly diminished (and theres capital gains on it which there wont be on investments)

In the Ops case of £110k invested, it would be reasonable to expect £3,000 to £4,000 a year from income from relatively low risk investments which over not much more than four years can be 100% sheltered from tax, no forms, no tenants, no agencies. Over 17 years at £3k that would be 20% more.

Or if they invested their £55k equity only, they could look to near £2k a year with no mortgage, no hassle, no lock in, and money spread over multiple assets, not one.

booksurr

Alias_Omega wrote: »

Its very easy...

OK, however as your post clearly shows you cannot leave everything to the agent and you must constantly check to ensure you keep up to date with changes

Alias_Omega wrote: »

3) Deductions. 10% for "Wear and Tear".

it was announced in the summer of 2015 that this would be abolished. The Finance Act 2016 duly repealed it and replaced it, wef 6 April 2016, with the a version of the old "renewals" basis. To quote HMRC .... "This change will create a small additional administrative burden for individual landlords who currently claim the wear and tear allowance as they will now need to keep a record of their actual expenditure and exclude any elements of improvement."

Alias_Omega wrote: »

4) If you earn less than £2000.

not quite....wrong threshold

https://www.gov.uk/renting-out-a-property/paying-tax

"Property you personally own
You must contact HMRC if your income from property rental is less than £2,500 a year.

But you must report it on a Self Assessment tax return if it’s:

- £2,500 to £9,999 after allowable expenses
- £10,000 or more before allowable expenses

If you don’t usually send a tax return, you need to register by 5 October following the tax year you had rental income."

Alias_Omega

^Your arguing over pennies..

1) The OP states that income would be £525 per month. You must have a different number of months in your year to have a rental income over £10000.

2) 10% wear and tear. Were in the 15-16 FY for Tax Returns; currently not applicable. Even if it were its £630 less to deduct from the profit. A could factor in a few things to eat that...nevermind taking the 99/1% income route.

3) £2000/£2500. Well now you've stated its £2500 then that covers the extra £650 from item no 2.

It is easy....like i said..when its good its good. But everyone "sings when they are winning". I can remember many a time painting the house back to a neutral colour as the tenant decided to paint it pink, remove doors/stairs banisters, or dig up the rear garden....

Insurance companies prompt you for the renewal. Letting Agent sorts out EPC, Gas Safety Checks etc. I get a nice invoice telling me what has been paid out and what i will get.... When its empty, they advertise it and credit check the tenants. They weed out the chancers and the real applicants. Its been empty on average for 2 weeks between lets. Thats enough time to have paint touched up, house & carpets cleaned.

The best houses are to buy on council estates. You buy them cheap, and rent them back to the LHA... Just remember....when its "no longer your home, its a business"..