Self Assessment Tax Bill Terror!

wildcardsa

Need advice: I began renting my 3 bed property in 2015 and have thus had to submit a SA Tax for for April 2015 - April 2016. My tenants pay £1250 a month and the current mortgage (which I had to shift to BTL) is £920 a month. Therefore a yearly profit of £3960.
I self manage it and have had no real issues, so was looking forward to having a little next egg at the end of this year. I am employed and earn a good salary at the same time.

Today, I received my tax assessment from from the financial consultant and basically its a tax bill for £5000 !!! The tax bill is broken down as £3500 odd for the 15-16 financial year and a further £1500 for the "1st Payment on account 2016-2017 with a further bill of 1500 for July! "

So basically Im hugely out of pocket and after tax , only profit less than £400 for the year!

My question is....how does anyone rent their property out if all you make is £400 a year for the grief and secondly, why do I have to pay the first half of 2016 upfront at the same time?!?

Please help.....

Guest101

wildcardsa wrote: »

Need advice: I began renting my 3 bed property in 2015 and have thus had to submit a SA Tax for for April 2015 - April 2016. My tenants pay £1250 a month and the current mortgage (which I had to shift to BTL) is £920 a month. Therefore a yearly profit of £3960. - Is it interest only?
I self manage it and have had no real issues, so was looking forward to having a little next egg at the end of this year. I am employed and earn a good salary at the same time.

Today, I received my tax assessment from from the financial consultant and basically its a tax bill for £5000 !!! The tax bill is broken down as £3500 odd for the 15-16 financial year and a further £1500 for the "1st Payment on account 2016-2017 with a further bill of 1500 for July! "

So basically Im hugely out of pocket and after tax , only profit less than £400 for the year!

My question is....how does anyone rent their property out if all you make is £400 a year for the grief and secondly, why do I have to pay the first half of 2016 upfront at the same time?!?

Please help.....

is your mortgage interest only?

AdrianC

wildcardsa wrote: »

My tenants pay £1250 a month and the current mortgage (which I had to shift to BTL) is £920 a month. Therefore a yearly profit of £3960

Repayment mortgage or interest-only?
If repayment, how much of that is interest?
What tax rate do you pay?
What other expenses have you claimed for? Is the property not insured...? No agent fees? No CT or utilities bills during the void before your tenants started?

My question is....how does anyone rent their property out if all you make is £400 a year for the grief

You haven't "made £400". You've made £1,900 after tax for the year.

and secondly, why do I have to pay the first half of 2016 upfront at the same time?!?

Because that's the way self-assessment tax works and has long worked. This should not have come as a surprise to you.

Guest101

AdrianC wrote: »

Repayment mortgage or interest-only?
If repayment, how much of that is interest?
What tax rate do you pay?
What other expenses have you claimed for? Is the property not insured...? No agent fees? No CT or utilities bills during the void before your tenants started?

You haven't "made £400". You've made £1,900 after tax for the year.

Because that's the way self-assessment tax works and has long worked. This should not have come as a surprise to you.

I think we both know the next post will be - it's repayment but why should I pay tax on that?!!

Linton

Is it an Interest Only or Repayment mortgage? If the former, why are you paying so much and if the latter you need to include your increased equity in the calculation of profit. How much is the house worth? Is the rent an economically justifiable % of the house value?

Are you being charged Higher Rate Tax?

Payment on account doesnt mean payment up front, it's more than half way through the tax year and so after you have received the money. People on PAYE pay when they receive the money.

Why are the returns different to what you calculated when you planned your BTL business?

loveka

That's just how self assessment works! The first year you end up paying in advance for next year. In following years this doesn't happen. You still pay in advance for the following year though, you are basically one year ahead.

Has this perhaps taken you into a higher tax bracket?

_CC_

wildcardsa wrote: »

My tenants pay £1250 a month and the current mortgage (which I had to shift to BTL) is £920 a month. Therefore a yearly profit of £3960.

Is that right?

If you're receiving £1250 per month I'd guess the £920 is a repayment mortgage and not interest only, therefore higher "profit" and greater tax?

How much do you earn? There are new tax changes coming in which will make it even less attractive if you're a higher rate tax payer.

pretamang

the current mortgage (which I had to shift to BTL) is £920 a month

I'm guessing that this is not an interest-only mortgage? Only the interest part is deductible as an expense when you work out your profits for tax purposes. From 2017 the amount of relief allowed on this expense is being restricted.
The capital repayment part is not relevant for self-assessment income tax.

why do I have to pay the first half of 2016 upfront at the same time?!?

We're already 9 months into the current 2016/17 tax year, HMRC don't want to wait until January 2018 for you to pay this tax so you are required to pay some now on the profits you've made since April 2016. They use the previous years' tax as estimate. However if you did stop being a landlord since April 2016 and can be certain that your next tax bill will be nothing, or lower, you can write to them explaining this and reduce the payments on account.

Your payments on account should each be 50% of the previous year's tax, so you should be paying £1750 now and £1750 in July. Perhaps your advisor has already applied to reduce them based on estimated profits for 2016/17?

Guest101

here we go:


https://forums.moneysavingexpert.com/discussion/5292017


Repayment percentage went up.

wildcardsa

It would appear this has indeed taken me into a higher tax bracket.
The mortgage is a Fixed BTL at 2.7%. This is my first year at doing a Self tax assessment as I usually pay Tax PAYE in my employment, so EVERYTHING is a surprise at the moment!

As for
You haven't "made £400". You've made £1,900 after tax for the year.
I calculate that If i make £3960 profit and pay £3500 tax, thats a little over £460 profit. The extra £1500 is the first part of my bill for the nxt financial year!

Unfortunately , it was my home, and then moved out to live with gf, and kept it as an investment, so not a business, just wanted to maintain "owning property".

Sigh, so best is probably just to pay it all, sell the house and not bother with SA after its sold and they take capital gains tax. (another thing)

Thanks to all for the advice...truly appreciated.

Guest101

wildcardsa wrote: »

It would appear this has indeed taken me into a higher tax bracket.
The mortgage is a Fixed BTL at 2.7%. This is my first year at doing a Self tax assessment as I usually pay Tax PAYE in my employment, so EVERYTHING is a surprise at the moment!

As for
You haven't "made £400". You've made £1,900 after tax for the year.
I calculate that If i make £3960 profit and pay £3500 tax, thats a little over £460 profit. The extra £1500 is the first part of my bill for the nxt financial year!

Sigh, so best is probably just to pay it all, sell the house and not bother with SA after its sold and they take capital gains tax. (another thing)

Thanks to all for the advice...truly appreciated.

You didn't make 460 profit you made £460 + the repayment element on your mortgage.