Landlord TAX Relief - Repayment Mortgage

soapstar88

AdrianC said:

THIRTY four years remaining...?!? Wow.
OK, so £130k at 3.59% for 34 years...
https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

About £552/mo, and in a year you'll repay just under £2k, so about £385/mo interest.

Let's ignore the capital repayment for the moment.
£650 rent in per month.
£385 out in mortgage interest, £50 in ground rent = £435, leaving £215/mo. But what about the service charge?
Allowance for bad debts, damage, maintenance, voids? Let's say 15% of rent, £97.50/mo, leaving £117.50.
Basic rate tax payers? So £95 in your pocket each month. 0.6% return on your investment, 2.3% return on your equity.

But that £95 is offset against the £167/mo going to repay borrowed capital - so you're actually down by £72/mo.

Sorry forgot to ask - Am I right in saying that you do not pay any tax on rented property if your profit is £1000 or below?  Is this after all allowable expenses?

AdrianC

But those figures do see you making more than £1,000 in taxable profit. £117.50 x 12 = £1,410

soapstar88

AdrianC said:

But those figures do see you making more than £1,000 in taxable profit. £117.50 x 12 = £1,410

Ok given that example is the full amount of £1410 taxable or £410?

Thanks

mooneysaver

AdrianC said:

THIRTY four years remaining...?!? Wow.
OK, so £130k at 3.59% for 34 years...
https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

About £552/mo, and in a year you'll repay just under £2k, so about £385/mo interest.

Let's ignore the capital repayment for the moment.
£650 rent in per month.
£385 out in mortgage interest, £50 in ground rent = £435, leaving £215/mo. But what about the service charge?
Allowance for bad debts, damage, maintenance, voids? Let's say 15% of rent, £97.50/mo, leaving £117.50.
Basic rate tax payers? So £95 in your pocket each month. 0.6% return on your investment, 2.3% return on your equity.

But that £95 is offset against the £167/mo going to repay borrowed capital - so you're actually down by £72/mo.

Seeing as we're inventing a ground rent and service charge to make our argument work we may as well double it each year.

Add on another imaginary cost of £1,000 per month and they are down a whopping £1,072 per month!!!

AdrianC

soapstar88 said:

AdrianC said:

But those figures do see you making more than £1,000 in taxable profit. £117.50 x 12 = £1,410

Ok given that example is the full amount of £1410 taxable or £410?

£1,410.

It's a case of very small profits aren't worth the paperwork, rather than the first grand being free. But bear in mind, too, that it's £1k BEFORE expenses. And your before-expenses figure is £7,800.

soapstar88

Thanks you have all been very helpful. Can I ask a stupid question? I have been trying to quietly figure this out but I cant!
How do we calculate the interest at £385 a month, what is the calculation for this with a repayment mortgage? I assume its more difficult than an interest only mortgage obviously!

Edit - Sorry I have worked this out, stupid me. Its 3.59% of the total 130k / 12...

AdrianC

soapstar88 said:

How do we calculate the interest at £385 a month, what is the calculation for this with a repayment mortgage? I assume its more difficult than an interest only mortgage obviously!

Look at the link I posted, to MSE's mortgage calculator.
It gives a monthly figure - and the graph shows how much you owe at the end of each year.
After 1 year, you will have paid off about £2k of capital, which means the remainder of your £552/mo payments are going to interest.

theartfullodger

soapstar88 said:

theartfullodger .

??? Don't think this plan would be viewed positively by many but, hey, free country!

OK so what would you recommend? The property wont sell, so how would you proceed? Just leave it and pay a mortgage on it until the market picks up again? We are only trying to cut our losses, I am not exactly planning on going to the Dragons Den with this proposal...

Property usually only not sell if price, description or condition/presentation isn't up to it.

Why expect to make a loss going forward rather than take a hit now and be shot.

Just trying to be realistic , apologies for any bluntness.

Good luck whatever you do.

soapstar88

I have been doing some sums from the information I have gathered here, if anyone can clarify If I am correct that would be great. I realise my assumptions on expenses may be off but lets take it as an example..
Mortgage interest is assumed at £385/month.

theartfullodger said:

soapstar88 said:

theartfullodger .

??? Don't think this plan would be viewed positively by many but, hey, free country!

OK so what would you recommend? The property wont sell, so how would you proceed? Just leave it and pay a mortgage on it until the market picks up again? We are only trying to cut our losses, I am not exactly planning on going to the Dragons Den with this proposal...

Property usually only not sell if price, description or condition/presentation isn't up to it.

Why expect to make a loss going forward rather than take a hit now and be shot.

Just trying to be realistic , apologies for any bluntness.

Good luck whatever you do.

I will be totally honest I know deep down that selling is probably the way to go, however when you have an identical property up for sale next to you which hasn't had a viewing for 6 months you cant blame us for going down the rental path...as much as a headache it may be.

AdrianC

soapstar88 said:

I will be totally honest I know deep down that selling is probably the way to go, however when you have an identical property up for sale next to you which hasn't had a viewing for 6 months you cant blame us for going down the rental path...as much as a headache it may be.

Do you mind sharing the link, and we'll see if we can figure out why it's not selling?

Clue: Probably price.