New taxes on BTLs - hill of beans?

kinger101

If you'd slightly misunderstood, and actually owned a property and wanted to work out your tax liability, I'd happily do this. But in this case, there isn't much point as we're talking hypotheticals without you knowing the very basics.

Read here if you're really interested

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

nubbins

So a 175k mortgage on a 250k purchase price
£1000 a month rent
35k salary

I think you will find she will pay approx £1500 tax per annum increasing to £2000 in 2020/21

download the spreadsheet below and input the figures.
http://www.themortgageworks.co.uk/support/tax_relief_changes

Remember its only the interest part of the mortgage which is claimable i.e approx £300 on this size mortgage

Ulfar

Have had a read, talk about the government making things more complicated and obfuscating what they are actually doing.

I bet many landlords have also the misunderstood what is going on.

A good link for the OP to work it out : http://www.telegraph.co.uk/personal-banking/mortgages/what-are-the-buy-to-let-tax-relief-changes-and-when-do-they-appl/

So the OP's friend will pay extra in the long run.

Crashy_Time

jdw2000 wrote: »

I thought many landlords just had interest-only mortgages.

Many do, especially recent buyers. They were banking on Mad Gainz every year and LESS tax, not a massive shift in the political/economic landscape and the government lining them up as political patsies.......

kinger101

The assumption the person will be a higher rate taxpayer is based on them having no other allowable expenses against the rental income, or no deductions from their salary e.g. pensions. And no voids.

Even if they had no employer scheme, a lump sum into a SIPP on the 5th of April would put them back into BR easily.

cashbackproblems

She sounds silly, shes raising 75k refinancing her own home meaning she will be payong her mortgage still and wont have much left in reserves likely

Plus the biggie...negative equity, prices are predicted to keep falling as is happening now and brexit could accelerate this. Anyone buying over the next 12 months is silly and those selling should do so before the poop hits th fan

nubbins

cashbackproblems wrote: »

Plus the biggie...negative equity, prices are predicted to keep falling as is happening now and brexit could accelerate this. Anyone buying over the next 12 months is silly and those selling should do so before the poop hits th fan

Is this what your partner keeps telling you?

cashbackproblems

nubbins wrote: »

Is this what your partner keeps telling you?

Yes shes seeing it first hand...

booksurr

jdw2000 wrote: »

I can see how my post was misleading.

I am saying that the changes in tax laws result in no NEW tax. She would still be paying £240 pa just as before. But no additional charges as a result of the new laws.

well yes, what is your point?

the new tax rules very clearly explain they have no impact on basic rate taxpayers

the only issues for a basic rate taxpayer is whether the treatment of rent "profit" excluding mortgage interest when added to their other taxable income will push them in the higher rate tax bracket. There are without doubt some LL with high gearing for whom that will be the case as their taxable net profit is no longer after deducting interest costs

booksurr

Ulfar wrote: »

Care to comment on how it will really work.

feel free to read and learn...

jdw2000 wrote: »

No. £35K from her full-time job.

now we are getting somewhere
On the assumption that BTL mortgages are nearly all interest only these days we do not need a calculator ... we will assume all 4,800 mortgage is interest

non rental income 35,000

rental income 12,000 - non finance costs 1,200 = 10,800 rental income

taxable income 35,000 + 10,800 - Pa 11,000 = 34,800
threshold for higher rate tax 32,000
so she is indeed pushed into the higher rate tax and her tax reduction on the interest cost will be capped at 20%

tax payable
32,000 @ 20% = 6,400
34,800 - 32,000 = 2,800 @ 40% = 1,120

total tax payable 6.4 + 1.12 = 7,520 less interest reduction (4,800 x 20% = 960)

actual tax payable 7,520 - 960 = 6,560

I am not going to try to unpick what mistakes you made with the online calculator. It is always better to understand how things work and be able to do it manually than take a calculator at face value.

try reading the Govt guidance first...
https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

Please note the above is how the calculation will work wwef 2020. Between now and then the chage is being phased in over 4 years so in 17/18 only 25% of the interest charge will be capped but by 20/21 all the interest will be capped