Tax advice for letting my flat

83dons2

I am about to let out my existing flat and purchase a new home that I will live in. I am trying to work out the tax liability I will face on the flat. My wages are c. £50,000 with the NHS and I have no other income so pay national insurance and income tax and pension via this employment. I guess I need to register for self assessment first of all if becoming a landlord? Also given the figures below how much tax would I pay monthly/yearly? I think i am near the higher rate tax band but not quite in it yet, I can find my tax code if it helps. I dont know what is tax deductible and what isnt.

Rent received £450/month
Mortgage payment made £175/month
Landlord management fees £65/month
Initial tenant setup fee with management company £300/per tenant
Landlord insurance £25/month
Gas certificate £72/year
Council registration £30/year
EICR & PAT testing £30/year
Legionella testing £30/year
One off fee to setup mortgage to let £300

There may be other costs I haven't found yet or there may be other items that are tax deductible I haven't thought of?

I just need an idea what the tax assessment is going to show up in terms of tax due so I can factor this into my budget as a cost monthly or yearly. Is it paid off once a year or over 12 months?

Dazed_and_C0nfused

I'll leave others better qualified to comment on the majority of your expenses however you definitely can't claim mortgage payments against your rental income.

Instead you may be able to claim a fixed tax deduction in relation to your mortgage interest (not the capital element) but that is 20% of the eligible interest and from what you've posted you are likely to be paying 40% tax on some or all of the profit.

This is worth a read,

https://www.litrg.org.uk/latest-news/news/190610-think-you-aren’t-impacted-landlord-finance-changes-think-again

You will need to register for Self Assessment (assuming you do a really receive at least £1k in rental income (not profit)).

Subject to the amounts involved the tax due under Self Assessment can be paid in 2 different ways, with a third option if you really want.

Using 2022:23 as an example,

File your return by 31 January 2024 and pay any tax due by the same date

File your return by 30 December 2023 and if you owe less than £3,000 you can normally have the tax collected via your 2024:25 tax code, effectively an interest free loan from HMRC which means you don't pay all of the tax owed until you are paid in March 2025

Or ask HMRC to include an estimate of your rental income in your current tax code and then when you file your return you will have less tax to pay then as you will have had extra deducted during the year. This doesn't prevent you from needing to complete a Self Assessment return and wouldn't be something most people would bother doing as you are paying tax much earlier than is strictly necessary.

My wages are c. £50,000 with the NHS

Is that before your pension contributions?  HMRC are interested in your taxable pay, the amount shown on your P60, so £50k salary in the NHS might only be £43,750 in taxable pay, leaving you plenty of basic rate band to use (assuming you aren't Scottish resident for tax purposes).

Jeremy535897

Read https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/973767/SA105_English_Notes-2021.pdf

On your specific questions, the mortgage interest, and mortgage arrangement fees, are dealt with as per Dazed's post. Finding the first  tenant is not an allowable cost. The rest are deductible expenses.

83dons2

Hi I forgot to mention I am a Scottish resident does this make any difference? My pay after tax, national insurance and NHS pension contributions is about £2700 a month so £32,400 a year. i did the .govuk taxable pay calculator and it doesn't mention pensions contributions being deductable. I have a feeling I may fall under the limit to where it becomes higher rate in Scotland after deductions but id still pay basic rate. The bandings in Scotland are as follows but I dont know what constitutes taxable pay?

Band	Taxable income	Scottish tax rate
Personal Allowance	Up to £12,570	0%
Starter rate	£12,571 to £14,732	19%
Basic rate	£14,733 to £25,688	20%
Intermediate rate	£25,689 to £43,662	21%
Higher rate	£43,663 to £150,000	41%
Top rate	over £150,000	46%

Dazed_and_C0nfused

What is important is your taxable pay.

Not your salary or your take home pay.

Your P60 should give you a good idea.

And yes, being Scottish resident means you will probably be paying 41% tax on the rental profit.

83dons2

My current salary is £47,846 with tax code S1257L. I pay income tax, national insurance and NHS pension contribution out of that each month. I can detail how much if need be. I am still none the wiser as to how to apply that to the Scottish tax scale above as I dont know what my taxable income is? How do i work it out? the tax guy  just called said take away 12570 from your wages and thats it but I dont think it is?!

Dazed_and_C0nfused

If you are in the NHS pension scheme the standard contributions (12.5%?) are deducted before tax is calculated.

These are "net pay" deductions which would mean your taxable pay would be £41,865.  Which leaves you a little bit of the intermediate rate band available.

You should be able to see your taxable pay on your payslip as well as your P60.

[Deleted User]

83dons2 said:

My current salary is £47,846 with tax code S1257L. I pay income tax, national insurance and NHS pension contribution out of that each month. I can detail how much if need be. I am still none the wiser as to how to apply that to the Scottish tax scale above as I dont know what my taxable income is? How do i work it out? the tax guy  just called said take away 12570 from your wages and thats it but I dont think it is?!

£47846 is a very unfortunate salary for pension contributions - that means that you pay 12.5% on all of that amount. If you were earning just £1 less, you would be paying 9.3%. That £1 has reduced your gross salary by £1531!

https://www.nhsbsa.nhs.uk/member-hub/cost-being-scheme

83dons2

purdyoaten2 said:

83dons2 said:

My current salary is £47,846 with tax code S1257L. I pay income tax, national insurance and NHS pension contribution out of that each month. I can detail how much if need be. I am still none the wiser as to how to apply that to the Scottish tax scale above as I dont know what my taxable income is? How do i work it out? the tax guy  just called said take away 12570 from your wages and thats it but I dont think it is?!

£47846 is a very unfortunate salary for pension contributions - that means that you pay 12.5% on all of that amount. If you were earning just £1 less, you would be paying 9.3%. That £1 has reduced your gross salary by £1531!

https://www.nhsbsa.nhs.uk/member-hub/cost-being-scheme

I think it is different in Scotland I'm on 9.5% I think but they are proposing increase. Also likely be a wage increase soon Consultation Document - NHS Member Contributions 2022.pdf (pensions.gov.scot). However this is not my main question.

1 I want to confirm that any future earnings from letting a property will be charged at higher rate in Scotland 41% (kick in at £43,663). My payroll contact has said last year 21/22 my taxable pay was £43,820.77 (gross pay minus super contributions - pension and NI maybe?). It sounds to me like I am already creeping into higher rate band so any future earning will be automatically at that rate is this correct? Not sure how this affected by claiming relief on mortgage interest payments as it says this can be offset vs tax? i think the first £1000 of any income ( i presume net income after deductions) is exempt (property allowance) from tax regardless is this correct? So I would in theory pay higher rate for any income earned over £1000? Seemingly if net income is between £1000-£2500 I dont ned to do a full self assessment and if over £2500 then its a full self assessment.

2 I want to detail a list of what is and what isn't deductible from tax from the letting income. From what I have read so far these seem deductible is this right?

Allowable deductions?:
Landlord insurance £25/month
Landlord management fees £65/month
Initial tenant setup fee with management company £300/per tenant
Gas certificate £72/year
Council registration £30/year
EICR & PAT testing £30/year
Legionella testing £30/year
Utility and council tax bills paid by me when flat has no tenant
Any repairs (not improvements)
Mortgage interest and mortgage arrangement fees (20% reduction on interest paid over the year. Not sure if this is the same in Scotland) ???

[Deleted User]

83dons2 said:

purdyoaten2 said:

83dons2 said:

My current salary is £47,846 with tax code S1257L. I pay income tax, national insurance and NHS pension contribution out of that each month. I can detail how much if need be. I am still none the wiser as to how to apply that to the Scottish tax scale above as I dont know what my taxable income is? How do i work it out? the tax guy  just called said take away 12570 from your wages and thats it but I dont think it is?!

£47846 is a very unfortunate salary for pension contributions - that means that you pay 12.5% on all of that amount. If you were earning just £1 less, you would be paying 9.3%. That £1 has reduced your gross salary by £1531!

https://www.nhsbsa.nhs.uk/member-hub/cost-being-scheme

I think it is diffferent in Scotland im on 9.5% I think. Consultation Document - NHS Member Contributions 2022.pdf (pensions.gov.scot)

It appears so!

Grumpy_chap

Has the OP considered second property SDLT on new home as part of the calculation of whether retain existing flat as BTL is viable?