Landlord tax question

Gemandcraig

So in simple terms of i buy a second property at £100k stamp duty of 3% as second property.

Then say mortgage of £400 - rent property for £600 per month so i would pay 20% tax on £600 which is £120 per month is that correct leaving me with a profit of £80 per month?

Is that correct?
So that hasnt even factored in maintenance insurance deposits or anything. Great stuff
Gemma

ognum

Gemandcraig wrote: »

So in simple terms of i buy a second property at £100k stamp duty of 3% as second property.

Then say mortgage of £400 - rent property for £600 per month so i would pay 20% tax on £600 which is £120 per month is that correct leaving me with a profit of £80 per month?

Is that correct?
So that hasnt even factored in maintenance insurance deposits or anything. Great stuff
Gemma

In simple terms you are correct.

elverson

What about voids?

saajan_12

Gemandcraig wrote: »

So in simple terms of i buy a second property at £100k stamp duty of 3% as second property. - yes, though note if buy anything over £125k then the stamp duty rate increases for the portion above 125k

Then say mortgage of £400 - rent property for £600 per month so i would pay 20% tax - yes, assuming you remain a basic rate tax payer with the rent income. on £600 which is £120 per month is that correct leaving me with a profit of £80 per month? - plus 20% tax relief on the INTEREST PORTION of your mortgage.

Is that correct?
So that hasnt even factored in maintenance insurance deposits or anything. These would be additional costs but you would get tax relief. Great stuff
Gemma

Then there's Capital Gains Tax when you sell if the property appreciates and don't forget you'll need to cover mortgage during voids / if a tenant doesn't pay rent.

LdnFtB

Letting agent fees. Plus all the time you have to put in it.

What would the return on your deposit be in a stocks and shares ISA?

00ec25

Gemandcraig wrote: »

So in simple terms of i buy a second property at £100k stamp duty of 3% as second property.

Then say mortgage of £400 - rent property for £600 per month so i would pay 20% tax on £600 which is £120 per month is that correct leaving me with a profit of £80 per month?

No, that is wrong

the correct calculations, assuming it is an interest ONLY mortgage, and therefore £400 is all interest, not interest and capital repayment, and assuming you remain a basic rate taxpayer, would be:

income £600
non interest costs £0
taxable profit £600 - 0 = 600

tax on profit 600 x 20% = £120
LESS TAX RELIEF @ 20% on the interest £400 x 20% = 80

profit after interest, tax and tax relief:
600 - 400 - 120 + 80 = £160 per month cash "profit"

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

in reality the new tax rules make no difference at all to someone who was and will remain a basic rate taxpayer..... previously: taxable income = 600 - 400 = 200 x 20% = 40 tax. Profit: 600 - 400 - 40 = £160

Gemandcraig

What are voids?

Gemandcraig

No - It will be a repayment mortgage at £400.

Are other things like boiler repairs and buildings insurance tax deductable or put down as costs?

Thanks
Gem

Gemandcraig

In 15 years where will my £40k be in a stocks and shares isa i have no idea - probably not enough to buy 4 cheap houses for the kids mortgage free.

Crashy_Time

http://www.telegraph.co.uk/personal-banking/mortgages/charts-600-monthly-profit-200-loss-buy-to-let-tax-biting/

bob_bank_spanker

Those sums look like a lousy return on investment I'm sorry to say. 100k in a Vanguard tracker would have earned about 10% last year xx