Buy-to-let landlord questions / running fees and tax by you!

vincent.lee

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

oldbikebloke said:

no it is not correct, because "all outgoings" includes costs that are not tax deductible 
correct answer:
income 12,000 less eligible costs (840+600+1200+150) = taxable profit 9,210
tax on profit 9,210 @ 20% = 1,842
less tax relief on mortgage interest 2400 @ 20% = 480
net tax payable 1,842 - 480 = 1,362

EDIT - I have not done it at Scottish rates, you can do that yourself 

you have fundamentally misunderstood the capital repayment!
You borrowed money to buy the property, as the loan reduces with each capital repayment, you own an increasing share of the property mortgage free, aka "equity". When you sell, the equity is yours to keep, so your personal net worth has increased. Just think about it: if your personal wealth increases why would that be a deduction against tax!. There is no way, shape, or form that a loan capital repayment is going to be a tax cost!

what you need to understand is how you finance the purchase (eg by repaying a loan) has nothing to do with the cost of the business. It is simply money borrowed and repaid. (The interest charged on the loan is different - see next point...)

you have also fundamentally misunderstood the mortgage interest tax relief. You have done exactly what the rules have stopped, you cannot claim the interest payment as a deduction when working out your profit. That is precisely what is not allowed as doing it that way gave people tax relief at their marginal rate. Instead you do as I show above: tax credit knocked off the tax bill as explained in the guidance... https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies


if you intend to DIY, and not pay an accountant who already knows what they are doing, then you need to learn the Property Income Manual so you too know what you are doing
https://www.gov.uk/hmrc-internal-manuals/property-income-manual

I also suggest you start with the simple stuff here: http://www.hmrc.gov.uk/courses/syob3/new_letting/HTML/new_letting_menu.html

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

First of all, I want to say thank you so much for your detailed reply! I really do appreciate it!

I see! So the only place I was wrong was that the mortgage repayments (capital and interest) are no tax deductible in any way. I can see I made a huge mistake there by obtaining the tax credit, AND deducting it - thanks for setting me straight.

It seems fairly straightforward thus far. I'll most definitely read through the links you posted.

Thank you!

One thing worth remembering is that the tax credit is only allowable against the tax due on your rental profit.

So if you had some vacant letting periods and the tax due was only say £200 then you can only have a tax credit of £200 in that tax year, not £480.

Oh! I see. So it isn't just a payment to you - gotcha.

That should be okay. On the actual figures, it looks like I'll owe about £1007.40 in tax, and have tax credit of £271.20, so it just be taken off the tax.

Is it done automatically, or do I need to apply separately for tax credit?

If you complete your return correctly then it will automatically form part of your Self Assessment tax calculation (SA302).

It may be useful for you to look at the paper versions of the 2019:20 Self Assessment return available on gov.uk, in particular the Income from Property pages and accompanying notes.

So all I would need to do is:
- Register for self assessment.
- Fill out the self-assessment return correctly

- If I filled it out correctly, then I can pay the tax owed, which will automagically have the tax credit applied

Is that correct?

Also, this must be a hugely ignorant question, but when does self-assessments need to be filled out by?

Thank you so much for all your help, and I'm sorry for being so ignorant!

vincent.lee

pramsay13 said:

Are you really going to get £1000 per month on a one bedroom flat?

No, it was purely for illustration purposes.

Dazed_and_C0nfused

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

oldbikebloke said:

no it is not correct, because "all outgoings" includes costs that are not tax deductible 
correct answer:
income 12,000 less eligible costs (840+600+1200+150) = taxable profit 9,210
tax on profit 9,210 @ 20% = 1,842
less tax relief on mortgage interest 2400 @ 20% = 480
net tax payable 1,842 - 480 = 1,362

EDIT - I have not done it at Scottish rates, you can do that yourself 

you have fundamentally misunderstood the capital repayment!
You borrowed money to buy the property, as the loan reduces with each capital repayment, you own an increasing share of the property mortgage free, aka "equity". When you sell, the equity is yours to keep, so your personal net worth has increased. Just think about it: if your personal wealth increases why would that be a deduction against tax!. There is no way, shape, or form that a loan capital repayment is going to be a tax cost!

what you need to understand is how you finance the purchase (eg by repaying a loan) has nothing to do with the cost of the business. It is simply money borrowed and repaid. (The interest charged on the loan is different - see next point...)

you have also fundamentally misunderstood the mortgage interest tax relief. You have done exactly what the rules have stopped, you cannot claim the interest payment as a deduction when working out your profit. That is precisely what is not allowed as doing it that way gave people tax relief at their marginal rate. Instead you do as I show above: tax credit knocked off the tax bill as explained in the guidance... https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies


if you intend to DIY, and not pay an accountant who already knows what they are doing, then you need to learn the Property Income Manual so you too know what you are doing
https://www.gov.uk/hmrc-internal-manuals/property-income-manual

I also suggest you start with the simple stuff here: http://www.hmrc.gov.uk/courses/syob3/new_letting/HTML/new_letting_menu.html

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

First of all, I want to say thank you so much for your detailed reply! I really do appreciate it!

I see! So the only place I was wrong was that the mortgage repayments (capital and interest) are no tax deductible in any way. I can see I made a huge mistake there by obtaining the tax credit, AND deducting it - thanks for setting me straight.

It seems fairly straightforward thus far. I'll most definitely read through the links you posted.

Thank you!

One thing worth remembering is that the tax credit is only allowable against the tax due on your rental profit.

So if you had some vacant letting periods and the tax due was only say £200 then you can only have a tax credit of £200 in that tax year, not £480.

Oh! I see. So it isn't just a payment to you - gotcha.

That should be okay. On the actual figures, it looks like I'll owe about £1007.40 in tax, and have tax credit of £271.20, so it just be taken off the tax.

Is it done automatically, or do I need to apply separately for tax credit?

If you complete your return correctly then it will automatically form part of your Self Assessment tax calculation (SA302).

It may be useful for you to look at the paper versions of the 2019:20 Self Assessment return available on gov.uk, in particular the Income from Property pages and accompanying notes.

So all I would need to do is:
- Register for self assessment.
- Fill out the self-assessment return correctly

- If I filled it out correctly, then I can pay the tax owed, which will automagically have the tax credit applied

Is that correct?

Also, this must be a hugely ignorant question, but when does self-assessments need to be filled out by?

Thank you so much for all your help, and I'm sorry for being so ignorant!

If this all started in the current tax year then you have until 31 January 2022 before the return for 2021:22 needs to be filed (and tax owed for 2021:22 paid).

But there is no benefit to leaving it until the last minute and advantages to filing earlier 

If you have a PAYE source of income and owe less than £3,000 from your Self Assessment you can choose to have the tax owed included in your 2022:23 tax code rather than pay it all on 31 January 2022.  This is essentially an interest free loan from HMRC.

To be eligible for this you need to have filed your return by 30 December 2021 (and owe less than £3,000 and be earning enough to have the tax collected through extra PAYE deductions).

You may however prefer to just pay it in January 2022 and keep it separate from your tax code.

oldbikebloke

vincent.lee said:
It seems fairly straightforward thus far. I'll most definitely read through the links you posted.

I very much hope you will learn from the links as looking at your previous posts you seem to have a history of asking factual tax questions whose answers are simply a matter of doing the reading in the first place if you "love it" that much.

vincent.lee

oldbikebloke said:

vincent.lee said:
It seems fairly straightforward thus far. I'll most definitely read through the links you posted.

I very much hope you will learn from the links as looking at your previous posts you seem to have a history of asking factual tax questions whose answers are simply a matter of doing the reading in the first place if you "love it" that much.

I've already said I will, but I often find it easier to discuss it with people to begin with.

Thank you for the positive encouragement though.

[Deleted User]

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

oldbikebloke said:

no it is not correct, because "all outgoings" includes costs that are not tax deductible 
correct answer:
income 12,000 less eligible costs (840+600+1200+150) = taxable profit 9,210
tax on profit 9,210 @ 20% = 1,842
less tax relief on mortgage interest 2400 @ 20% = 480
net tax payable 1,842 - 480 = 1,362

EDIT - I have not done it at Scottish rates, you can do that yourself 

you have fundamentally misunderstood the capital repayment!
You borrowed money to buy the property, as the loan reduces with each capital repayment, you own an increasing share of the property mortgage free, aka "equity". When you sell, the equity is yours to keep, so your personal net worth has increased. Just think about it: if your personal wealth increases why would that be a deduction against tax!. There is no way, shape, or form that a loan capital repayment is going to be a tax cost!

what you need to understand is how you finance the purchase (eg by repaying a loan) has nothing to do with the cost of the business. It is simply money borrowed and repaid. (The interest charged on the loan is different - see next point...)

you have also fundamentally misunderstood the mortgage interest tax relief. You have done exactly what the rules have stopped, you cannot claim the interest payment as a deduction when working out your profit. That is precisely what is not allowed as doing it that way gave people tax relief at their marginal rate. Instead you do as I show above: tax credit knocked off the tax bill as explained in the guidance... https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies


if you intend to DIY, and not pay an accountant who already knows what they are doing, then you need to learn the Property Income Manual so you too know what you are doing
https://www.gov.uk/hmrc-internal-manuals/property-income-manual

I also suggest you start with the simple stuff here: http://www.hmrc.gov.uk/courses/syob3/new_letting/HTML/new_letting_menu.html

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

First of all, I want to say thank you so much for your detailed reply! I really do appreciate it!

I see! So the only place I was wrong was that the mortgage repayments (capital and interest) are no tax deductible in any way. I can see I made a huge mistake there by obtaining the tax credit, AND deducting it - thanks for setting me straight.

It seems fairly straightforward thus far. I'll most definitely read through the links you posted.

Thank you!

One thing worth remembering is that the tax credit is only allowable against the tax due on your rental profit.

So if you had some vacant letting periods and the tax due was only say £200 then you can only have a tax credit of £200 in that tax year, not £480.

Oh! I see. So it isn't just a payment to you - gotcha.

That should be okay. On the actual figures, it looks like I'll owe about £1007.40 in tax, and have tax credit of £271.20, so it just be taken off the tax.

Is it done automatically, or do I need to apply separately for tax credit?

If you complete your return correctly then it will automatically form part of your Self Assessment tax calculation (SA302).

It may be useful for you to look at the paper versions of the 2019:20 Self Assessment return available on gov.uk, in particular the Income from Property pages and accompanying notes.

So all I would need to do is:
- Register for self assessment.
- Fill out the self-assessment return correctly

- If I filled it out correctly, then I can pay the tax owed, which will automagically have the tax credit applied

Is that correct?

Also, this must be a hugely ignorant question, but when does self-assessments need to be filled out by?

Thank you so much for all your help, and I'm sorry for being so ignorant!

If this all started in the current tax year then you have until 31 January 2022 before the return for 2021:22 needs to be filed (and tax owed for 2021:22 paid).

But there is no benefit to leaving it until the last minute and advantages to filing earlier 

If you have a PAYE source of income and owe less than £3,000 from your Self Assessment you can choose to have the tax owed included in your 2022:23 tax code rather than pay it all on 31 January 2022.  This is essentially an interest free loan from HMRC.

To be eligible for this you need to have filed your return by 30 December 2021 (and owe less than £3,000 and be earning enough to have the tax collected through extra PAYE deductions).

You may however prefer to just pay it in January 2022 and keep it separate from your tax code.

Of course you meant ‘2020/21 return needs to be filed (and tax owed for 2020/21 paid)’

Dazed_and_C0nfused

[Deleted User] said:

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

oldbikebloke said:

no it is not correct, because "all outgoings" includes costs that are not tax deductible 
correct answer:
income 12,000 less eligible costs (840+600+1200+150) = taxable profit 9,210
tax on profit 9,210 @ 20% = 1,842
less tax relief on mortgage interest 2400 @ 20% = 480
net tax payable 1,842 - 480 = 1,362

EDIT - I have not done it at Scottish rates, you can do that yourself 

you have fundamentally misunderstood the capital repayment!
You borrowed money to buy the property, as the loan reduces with each capital repayment, you own an increasing share of the property mortgage free, aka "equity". When you sell, the equity is yours to keep, so your personal net worth has increased. Just think about it: if your personal wealth increases why would that be a deduction against tax!. There is no way, shape, or form that a loan capital repayment is going to be a tax cost!

what you need to understand is how you finance the purchase (eg by repaying a loan) has nothing to do with the cost of the business. It is simply money borrowed and repaid. (The interest charged on the loan is different - see next point...)

you have also fundamentally misunderstood the mortgage interest tax relief. You have done exactly what the rules have stopped, you cannot claim the interest payment as a deduction when working out your profit. That is precisely what is not allowed as doing it that way gave people tax relief at their marginal rate. Instead you do as I show above: tax credit knocked off the tax bill as explained in the guidance... https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies


if you intend to DIY, and not pay an accountant who already knows what they are doing, then you need to learn the Property Income Manual so you too know what you are doing
https://www.gov.uk/hmrc-internal-manuals/property-income-manual

I also suggest you start with the simple stuff here: http://www.hmrc.gov.uk/courses/syob3/new_letting/HTML/new_letting_menu.html

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

First of all, I want to say thank you so much for your detailed reply! I really do appreciate it!

I see! So the only place I was wrong was that the mortgage repayments (capital and interest) are no tax deductible in any way. I can see I made a huge mistake there by obtaining the tax credit, AND deducting it - thanks for setting me straight.

It seems fairly straightforward thus far. I'll most definitely read through the links you posted.

Thank you!

One thing worth remembering is that the tax credit is only allowable against the tax due on your rental profit.

So if you had some vacant letting periods and the tax due was only say £200 then you can only have a tax credit of £200 in that tax year, not £480.

Oh! I see. So it isn't just a payment to you - gotcha.

That should be okay. On the actual figures, it looks like I'll owe about £1007.40 in tax, and have tax credit of £271.20, so it just be taken off the tax.

Is it done automatically, or do I need to apply separately for tax credit?

If you complete your return correctly then it will automatically form part of your Self Assessment tax calculation (SA302).

It may be useful for you to look at the paper versions of the 2019:20 Self Assessment return available on gov.uk, in particular the Income from Property pages and accompanying notes.

So all I would need to do is:
- Register for self assessment.
- Fill out the self-assessment return correctly

- If I filled it out correctly, then I can pay the tax owed, which will automagically have the tax credit applied

Is that correct?

Also, this must be a hugely ignorant question, but when does self-assessments need to be filled out by?

Thank you so much for all your help, and I'm sorry for being so ignorant!

If this all started in the current tax year then you have until 31 January 2022 before the return for 2021:22 needs to be filed (and tax owed for 2021:22 paid).

But there is no benefit to leaving it until the last minute and advantages to filing earlier 

If you have a PAYE source of income and owe less than £3,000 from your Self Assessment you can choose to have the tax owed included in your 2022:23 tax code rather than pay it all on 31 January 2022.  This is essentially an interest free loan from HMRC.

To be eligible for this you need to have filed your return by 30 December 2021 (and owe less than £3,000 and be earning enough to have the tax collected through extra PAYE deductions).

You may however prefer to just pay it in January 2022 and keep it separate from your tax code.

Of course you meant ‘2020/21 return needs to be filed (and tax owed for 2020/21 paid)’

Yes, well spotted 

Confusing myself with all the different tax years involved!!

vincent.lee

Dazed_and_C0nfused said:

[Deleted User] said:

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

Dazed_and_C0nfused said:

vincent.lee said:

oldbikebloke said:

no it is not correct, because "all outgoings" includes costs that are not tax deductible 
correct answer:
income 12,000 less eligible costs (840+600+1200+150) = taxable profit 9,210
tax on profit 9,210 @ 20% = 1,842
less tax relief on mortgage interest 2400 @ 20% = 480
net tax payable 1,842 - 480 = 1,362

EDIT - I have not done it at Scottish rates, you can do that yourself 

you have fundamentally misunderstood the capital repayment!
You borrowed money to buy the property, as the loan reduces with each capital repayment, you own an increasing share of the property mortgage free, aka "equity". When you sell, the equity is yours to keep, so your personal net worth has increased. Just think about it: if your personal wealth increases why would that be a deduction against tax!. There is no way, shape, or form that a loan capital repayment is going to be a tax cost!

what you need to understand is how you finance the purchase (eg by repaying a loan) has nothing to do with the cost of the business. It is simply money borrowed and repaid. (The interest charged on the loan is different - see next point...)

you have also fundamentally misunderstood the mortgage interest tax relief. You have done exactly what the rules have stopped, you cannot claim the interest payment as a deduction when working out your profit. That is precisely what is not allowed as doing it that way gave people tax relief at their marginal rate. Instead you do as I show above: tax credit knocked off the tax bill as explained in the guidance... https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies


if you intend to DIY, and not pay an accountant who already knows what they are doing, then you need to learn the Property Income Manual so you too know what you are doing
https://www.gov.uk/hmrc-internal-manuals/property-income-manual

I also suggest you start with the simple stuff here: http://www.hmrc.gov.uk/courses/syob3/new_letting/HTML/new_letting_menu.html

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

First of all, I want to say thank you so much for your detailed reply! I really do appreciate it!

I see! So the only place I was wrong was that the mortgage repayments (capital and interest) are no tax deductible in any way. I can see I made a huge mistake there by obtaining the tax credit, AND deducting it - thanks for setting me straight.

It seems fairly straightforward thus far. I'll most definitely read through the links you posted.

Thank you!

One thing worth remembering is that the tax credit is only allowable against the tax due on your rental profit.

So if you had some vacant letting periods and the tax due was only say £200 then you can only have a tax credit of £200 in that tax year, not £480.

Oh! I see. So it isn't just a payment to you - gotcha.

That should be okay. On the actual figures, it looks like I'll owe about £1007.40 in tax, and have tax credit of £271.20, so it just be taken off the tax.

Is it done automatically, or do I need to apply separately for tax credit?

If you complete your return correctly then it will automatically form part of your Self Assessment tax calculation (SA302).

It may be useful for you to look at the paper versions of the 2019:20 Self Assessment return available on gov.uk, in particular the Income from Property pages and accompanying notes.

So all I would need to do is:
- Register for self assessment.
- Fill out the self-assessment return correctly

- If I filled it out correctly, then I can pay the tax owed, which will automagically have the tax credit applied

Is that correct?

Also, this must be a hugely ignorant question, but when does self-assessments need to be filled out by?

Thank you so much for all your help, and I'm sorry for being so ignorant!

If this all started in the current tax year then you have until 31 January 2022 before the return for 2021:22 needs to be filed (and tax owed for 2021:22 paid).

But there is no benefit to leaving it until the last minute and advantages to filing earlier 

If you have a PAYE source of income and owe less than £3,000 from your Self Assessment you can choose to have the tax owed included in your 2022:23 tax code rather than pay it all on 31 January 2022.  This is essentially an interest free loan from HMRC.

To be eligible for this you need to have filed your return by 30 December 2021 (and owe less than £3,000 and be earning enough to have the tax collected through extra PAYE deductions).

You may however prefer to just pay it in January 2022 and keep it separate from your tax code.

Of course you meant ‘2020/21 return needs to be filed (and tax owed for 2020/21 paid)’

Yes, well spotted 

Confusing myself with all the different tax years involved!!

So just to confirm:

I have until January 2022 to fill and pay for the tax owed in the current tax year (1st April 2020 - 31st March 2021).

Is that right?

Dazed_and_C0nfused

Not quite.

You have until 31 January 2022 to file the return for 2020:21.   Any tax owed will be payable on the 31 January 2022 irrespective of when you file the return (either early or late)

But the current tax year runs from 6 April 2020 to 5 April 2021