renting out main residence - tax on rental income

lithe

Thanks. The flat is in a very good area SW greater London - green, clean, excellent schools, good commuting links (not on tube though, otherwise I could have charged more for rent). Also low rise brick ex-council and it's quite big (for greater London standards anyway), and it's in a very good state. Appliances and boiler and all < 5 years old.

The lender won't change the rate for consent to let for 1 yr or so, but after that I will have to switch to buy to let.

00ec25

lithe wrote: »

Thanks a lot. The letting agents fees, insurances, and maintenance/repairs are allowable expenses that could reduce the taxable profit, no?

those are facts which you can read for yourself in the link I already gave you. You don't need spoon feeding

also read GM's guide to being a Landlord. It contains hundreds of facts you must make yourself knowledgeable about if you wish to remain within the law and not get done over by your tenant. You will also need to read every page of every link therein....being a LL is not just about will the rent cover the mortgage!

https://forums.moneysavingexpert.com/discussion/5180214

lithe

Thanks - yes I do realize this, I'm a complete newbie on this one, but just wanted to get some opinions/help on this tax calculation issue, as I didn't really understand how the calc is done.

In any case, it appears that - while the net profits can cover part of the capital repayment - I'd probably have to come up with £200+, to cover capital repayments entirely, as I don't intend to switch to mortgage only. I've now done a spreadsheet but not sure I calculated the tax correctly, and also not sure how realistic/optimistic my assumptions are, regarding costs. Also, my spreadsheet doesn't include any void periods, I'd probably have to add something like ~ 1 month each year as a contingency....

INC ANNUAL RENTAL INCOME = £15,600

REP repairs/maintenance/insurances 10%*INC =£1,560
FEE letting agents fees 15%*INC = £2,340
SVC service charges £900 = £900
INT mortgage interest £380*12 = £4,560
TAX tax, less relief = 40%*(INC-REP-FEE-SVC-INT) - 20%*INT = £1,584
TEXP TOTAL EXPENSES = £10,944

PFT net cash profit INC-TEXP = £4,656

CAP annual capital repayment portion £620*12 = £7,440

annual out of the pocket contrib to mortgage repayments CAP - PFT = £2,784 (pcm £232)

lithe

Thanks a lot everyone for the answers and links... very useful!

00ec25

lithe wrote: »

Thanks - yes I do realize this, I'm a complete newbie on this one, but just wanted to get some opinions/help on this tax calculation issue, as I didn't really understand how the calc is done.

In any case, it appears that - while the net profits can cover part of the capital repayment - I'd probably have to come up with £200+, to cover capital repayments entirely, as I don't intend to switch to mortgage only. I've now done a spreadsheet but not sure I calculated the tax correctly, and also not sure how realistic/optimistic my assumptions are, regarding costs. Also, my spreadsheet doesn't include any void periods, I'd probably have to add something like ~ 1 month each year as a contingency....

INC ANNUAL RENTAL INCOME = £15,600

REP repairs/maintenance/insurances 10%*INC =£1,560
FEE letting agents fees 15%*INC = £2,340
SVC service charges £900 = £900
INT mortgage interest £380*12 = £4,560 NOT an allowed expense under the new rules
TAX tax, less relief = 40%*(INC-REP-FEE-SVC-INT wrong ) - 20%*INT = £1,584
TEXP TOTAL EXPENSES = £10,944 wrong

PFT net cash profit INC-TEXP = £4,656

CAP annual capital repayment portion £620*12 = £7,440

annual out of the pocket contrib to mortgage repayments CAP - PFT = £2,784 (pcm £232)

how did you become a higher rate taxpayer when you cannot follow examples given to you on a plate?

your formula is garbage, I showed you the correct methodology in #7

for the purposes of estimating your finances it is not unreasonable to calculate using 10% repairs but you certainly cannot claim that in the tax calculation. You can only claim what you actually spend.

using those figures your cash income per year is MINUS £4,032

lithe

Garbage is a bit of a strong word, esp for a newbie. Not all jobs require maths skills, you know, perhaps I'm paid to sing or write poetry

In any case, thanks for the answer - I didn't realize the mortgage interest wasn't an allowed expense, obviously still learning. And yes, I do realize that I might not spend 10% on repairs etc but had to enter something in the scenario spreadsheet.

bob_bank_spanker

00ec25 wrote: »

how did you become a higher rate taxpayer when you cannot follow examples given to you on a plate?

your formula is garbage, I showed you the correct methodology in #7

for the purposes of estimating your finances it is not unreasonable to calculate using 10% repairs but you certainly cannot claim that in the tax calculation. You can only claim what you actually spend.

using those figures your cash income per year is MINUS £4,032

Is there any need to be quite such a know it all about it? I'm guessing the OP came here for help, not to be admonished. I'll never understand why some people want to attack strangers on the internet xx

sparky130a

bob_bank_spanker wrote: »

Is there any need to be quite such a know it all about it? I'm guessing the OP came here for help, not to be admonished. I'll never understand why some people want to attack strangers on the internet xx

To be fair, the figures speak for themselves....

And i lose interest when it's realize not realise...

bob_bank_spanker

sparky130a wrote: »

To be fair, the figures speak for themselves....

And i lose interest when it's realize not realise...

No, they don't.

The tapering of mortgage interest relief for higher rate tax payers over the next few years is the crucial factor for whether this project is affordable or not. Hence, the raw data is does not speak for itself - it needs interpretation.

You are an electrician, not an accountant - I'm surprised you can say with such confidence that the figures speak for themselves.

sparky130a

bob_bank_spanker wrote: »

No, they don't.

The tapering of mortgage interest relief for higher rate tax payers over the next few years is the crucial factor for whether this project is affordable or not. Hence, the raw data is does not speak for itself - it needs interpretation.

You are an electrician, not an accountant - I'm surprised you can say with such confidence that the figures speak for themselves.

I'm not getting involved in an argument.

However...

HMRC don't interpret figures...

I'm not an electrician ( I wish i was )

I have perfectly acceptable qualifications in economics, accountancy,business studies and law.

Am i a smart !!!!? Probably... But i'm smarter and more educated than you pal.