New at buy to let .. help!

thriftybabe

I hope someone can help. We have just bought our first buy to let. We have put a deposit of £20k and will have a mortgage of £53k. Mortgage payments will be £350 and we are hoping to rent for £380 - £400. Can anyone tell me do we pay tax on the income we receive from the renter i.e say £200 is on interest and £180 is on capital repayment. Do we just pay tax on £180. Also if anyone knows of a way of reducing this would be greatly appreciative of any advice.

Thanks

Soubrette

thriftybabe wrote: »

I hope someone can help. We have just bought our first buy to let. We have put a deposit of £20k and will have a mortgage of £53k. Mortgage payments will be £350 and we are hoping to rent for £380 - £400. Can anyone tell me do we pay tax on the income we receive from the renter i.e say £200 is on interest and £180 is on capital repayment. Do we just pay tax on £180. Also if anyone knows of a way of reducing this would be greatly appreciative of any advice.

Thanks

When I used to rent out my house about 4-5 years ago, I paid tax on the whole of the rent less tax deductable expense. At this time I thought (but you have me wondering!) it was available on the interest part of the mortgage (My stupid accountant did not take this into account :mad: ) and also I had a choice of either using 10% (I think) of the income per annum or paying for maintenance etc as and when it cropped up as tax deductable (I was told by the IR that if too much is claimed in one year then they may investigate). This was for a fully furnished house. The rules were different for unfurnished houses.

You will need to ask for a self assessment form which will give you details on what you pay tax on and what you don't. I personally would seek the advice of a professional to ensure that you claim everything that is tax deductable but you do not inadvertantly make mistakes as the rules may have changed.

The Inland Revenue are also great people to phone for info. One word of warning - take names and remember that even if they misadvise you, you are still liable for any tax due.

Sorry for the woolley info but I hope it gives you a starting point

Sou

wii_man1

thriftybabe wrote: »

I hope someone can help. We have just bought our first buy to let. We have put a deposit of £20k and will have a mortgage of £53k. Mortgage payments will be £350 and we are hoping to rent for £380 - £400. Can anyone tell me do we pay tax on the income we receive from the renter i.e say £200 is on interest and £180 is on capital repayment. Do we just pay tax on £180. Also if anyone knows of a way of reducing this would be greatly appreciative of any advice.

Thanks

Don`t you know buy to let is screwed :rotfl:

epz_2

wii_man1 wrote: »

Don`t you know buy to let is screwed :rotfl:

at 73k im assuming it was either a wreck or its dss rental teritory, even in glasgow you would have probs renting a place that sells for that to anyone else.


from what i understand the interest is a business expence so not income.

lr1277

The interest part of of the mortgage payments can be set against the rental income thus reducing your profit. Be sure that it is only the interest part and not against any of the capital.

Depending on how you are managing the tenant, i.e. whether it is yourself or a letting agent, you can deduct the letting agent's fees from the rental income.
If you are using a letting agent, negotiate their fees before you give them the job of finding you a tenant. As part of the negotiation, make sure you nail down the fees if the tenant stays for more than the initial period; and getting your money back if they don't stay for the full initial period.

I believe you can also allow 10% of the income against wear and tear. You can also claim from the rental income visits to the property, stationary, phone calls etc. I have claimed train/tube tickets to my property but never used taxi's or anything. If driving us can use the IR rate of 40p a mile (I think). Technically if you are driving to the property, you car insurance should cover you for business related journeys and not just commuting to/from work. I don't know if you can claim the increased insurance costs against rental income. You would need to speak to a professional.

Repairs/maintenance can be deducted from the rental income but putting new stuff is a tricky area and you would be best consulting with a professional. Preferably choose a professional who also has a buy to let property of their own.

lr1277

Another thought, whilst the property is empty, you can claim the bills against the rental income.

Also councils may no longer give a discount if the property is empty so you may have to pay full council tax during that period.

Remember to tell the council/utilities when tenants move in and out. Don't rely on the tenant or the letting agent to do this.

Make sure you do get a forwarding address from the tenant when they leave to pass on any forgotten bills.

eco-friendly_2

epz wrote: »

at 73k im assuming it was either a wreck or its dss rental teritory, even in glasgow you would have probs renting a place that sells for that to anyone else.


from what i understand the interest is a business expence so not income.

glasgow is a capital G sassenach !

real1314

epz wrote: »

at 73k im assuming it was either a wreck or its dss rental teritory, even in glasgow you would have probs renting a place that sells for that to anyone else.


from what i understand the interest is a business expence so not income.

£73k is hardly an unknown figure for a property. Don't let HPI cloud your judgement.

Within 10 miles of many cities you can find properties for this sort of price. (Londinium excepted).

granville_2

thriftybabe wrote: »

I hope someone can help. We have just bought our first buy to let. We have put a deposit of £20k and will have a mortgage of £53k. Mortgage payments will be £350 and we are hoping to rent for £380 - £400. Can anyone tell me do we pay tax on the income we receive from the renter i.e say £200 is on interest and £180 is on capital repayment. Do we just pay tax on £180. Also if anyone knows of a way of reducing this would be greatly appreciative of any advice.

Thanks

With all due respect... you've just spend £73K on a BTL and are asking basic BTL questions on a money saving board?!?

Did you not research this prior to buying? Has the world gone mad?
:eek:

poppy10_2

Granville is being harsh, but he's right - you should have taken tax into account before you bought - now your sums don't add up, and you will be losing money on the property each month.

PasturesNew

thriftybabe wrote: »

Mortgage payments will be £350 and we are hoping to rent for £380 - £400.
i.e say £200 is on interest and £180 is on capital repayment.

Over the next year it might work like this:

Assumption: property is 100% perfect and ready to go
Property available to let: 12 months
Property let: 10 months (2 months to find a tenant through an agent)

Outgoings

---

£2400 - mortgage interest
£200 - agency fees to find tenant
£380 - agency monthly fees to manage property (10% of rent/month)
£380 - allowance for wear & tear
====
£3360


Income

---

£3800 - 10 months let at £380/month


Income-Outgoings

---

£3800-£3360 = £440

In Your Pocket

---

You would pay tax on £440 at 20% if you are a lower tax payer; 40% if you are a higher tax payer.
Plus you would "pocket" the £380 wear and tear amount.

Of course, the amounts would vary if you had any other fees, or bigger voids, or troublesome tenants. Also, if you furnished it from scratch there'd be monies you've paid out for all of that too.

I have totally disregarded the repayment part of the mortgage as this doesn't come into the equation at all. You are paying that out monthly to reduce your borrowings and it isn't taken into account for the income/expenditure or tax figures.

If the value of this house did not go up or down, then when you sell you would pay capital gains tax at 18%. But as the gain will be £0 there would be nothing to pay. Capital gains tax is payable on any increase in the value.