Income from Rent

24shaw

Hi, I currently have a 3 bed detached house outside of Manchester, I am fed up of commuting and while I am still young I would like to experience city life, I have tenants ready to move into my house at the end of the month. I have yet to find a flat in the city centre as I am unsure how much money I will have to spend because of income tax I may or may not have to pay on the rental income I get.

I have a full time job earning over mid 40s and a mortgage of 550 a month with rent income of £850 a month. Can anyone let me know how much I will be paying with tax on the rent income, will it be 40%?

I have consent to let from my mortgage provider, I will pay landlords insurance, i want everything to be above board.

Guest101

Yes it will be 40%

00ec25

you have a job paying "mid 40s" therefore you are a higher rate taxpayer if your total income (salary + taxable profit from letting) = > £45,000 pa
https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18

the higher rate tax is 40%

if your question is really what amount of tax will i pay then we cannot answer that without at lot more figures to work out your actual taxable net profit

theartfullodger

Don't forget there are also expenses - repairs, insurance, management fees, mortgage costs, etc etc etc etc etc...

24shaw

Thanks for your response. How frustrating! Is it 40% of the entire rental income? If I pay management fees to the agent, is that knocked off? and do I not ignore the interest part of the mortgage?

Its all very confusing.

00ec25

24shaw wrote: »

Thanks for your response. How frustrating! Is it 40% of the entire rental income? If I pay management fees to the agent, is that knocked off? and do I not ignore the interest part of the mortgage?

Its all very confusing.

it is only confusing because you appear to have done no research yet despite being a highly paid employee!

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

DumbMuscle

As a side note, if you have student loan repayments, they will also be taken out of your rental income when you do your self assessment (9%).

And you will be liable for capital gains tax when you sell the property.

The income tax you will pay is (rent - expenses)*0.4 - i.e. any expenses are subtracted from the income used to calculate the tax, not the tax paid. The link above describes what counts as "expenses". Mortgage *interest* (not the full repayment) is an expense, but you can only claim back a reduced tax rate on it.

You are probably not going to earn more after tax than your mortgage payments.

aneary

DumbMuscle wrote: »

A
And you will be liable for capital gains tax when you sell the property.

I don't think the OP wants to sell the property just rent out whilst he is young enough to enjoy the city.

hazyjo

You could always just sell it and buy in the centre. Or are you worried about making a mistake?


You'll still have tenants in for at least 6 or 12 months so won't be able to move back if you don't like it.

24shaw

I don't pay Student loans fortunately, my employer paid for my studying.

Its the expenses part that I am now trying to get my head around, do agents fees count as an expense? Does the mortgage?

Is capital gains tax something I will need to worry about if I sell the house while its still rented?

24shaw

Hazyjo, that is an option I suppose. I just worry that in a year or so I might want to settle down in the house again.