Calculating adjusted net income

Strummer22

Hi, 

I'm trying to estimate what my adjusted net income will be for the 23-24 tax year so I know roughly how much to contribute to my pension each month to avoid HICBC.

I have income from:
- salary
- dividends
- interest on savings (very small amount)
- rental income - less than £1,000
- child benefit

I also receive domestic renewable heat incentive payments but I am certain those aren't relevant to the calculation.

Quick query re: child benefit - that doesn't contribute to adjusted net income does it? I found a page (https://accotax.co.uk/adjusted-net-income/) which indicates it does, but I think it's wrong. Can anyone confirm?

What I really want to know is whether the rental income counts. HMRC's page (https://www.gov.uk/guidance/adjusted-net-income) says taxable income includes "some rental income" and says (on https://www.gov.uk/income-tax) you don't pay tax on the first £1,000 from a property you rent. Do I add my rental income or not?

Dazed_and_C0nfused

You include profits from rental properties, not income.

You don't include Child Benefit as it's not taxable income.

Jeremy535897

Salary, dividends and interest (whether covered by dividend allowance or personal savings allowance or not) are included in adjusted net income. You can deduct either £1,000, or actual allowable expenses, from gross rents to arrive at the net rental income, which forms part of adjusted net income. You would not deduct any finance costs. The link you quoted was talking about how adjusted net income impacts the child benefit charge.

Strummer22

Jeremy535897 said:

Salary, dividends and interest (whether covered by dividend allowance or personal savings allowance or not) are included in adjusted net income. You can deduct either £1,000, or actual allowable expenses, from gross rents to arrive at the net rental income, which forms part of adjusted net income. You would not deduct any finance costs. The link you quoted was talking about how adjusted net income impacts the child benefit charge.

The bit I highlighted in bold would suggest to me that the first £1,000 of rental income (technically profit, as noted by Dazed_and_C0nfused) does not form part of adjusted net income. Is that correct?

Dazed_and_C0nfused

Strummer22 said:

Jeremy535897 said:

Salary, dividends and interest (whether covered by dividend allowance or personal savings allowance or not) are included in adjusted net income. You can deduct either £1,000, or actual allowable expenses, from gross rents to arrive at the net rental income, which forms part of adjusted net income. You would not deduct any finance costs. The link you quoted was talking about how adjusted net income impacts the child benefit charge.

The bit I highlighted in bold would suggest to me that the first £1,000 of rental income (technically profit, as noted by Dazed_and_C0nfused) does not form part of adjusted net income. Is that correct?

No, 100% of your rental profit forms part of your adjusted net income.

You need to know your profit figure before you can calculate your adjusted net income.

Jeremy535897

Strummer22 said:

Jeremy535897 said:

Salary, dividends and interest (whether covered by dividend allowance or personal savings allowance or not) are included in adjusted net income. You can deduct either £1,000, or actual allowable expenses, from gross rents to arrive at the net rental income, which forms part of adjusted net income. You would not deduct any finance costs. The link you quoted was talking about how adjusted net income impacts the child benefit charge.

The bit I highlighted in bold would suggest to me that the first £1,000 of rental income (technically profit, as noted by Dazed_and_C0nfused) does not form part of adjusted net income. Is that correct?

Your gross rental income is what the tenant pays. Your net rental income (or profit, which is really a term used for trading) is gross rental income less allowable deductions, which can either be £1,000, or your actual allowable expenses if that gives you a better result. There are cases where you are better claiming £500 actual expenses than the £1,000 property allowance, even if that results in higher adjusted net income. Such a case would include the case where you have a significant amount of interest that would give you a greater tax credit at 20% than claiming the property allowance.

Strummer22

Jeremy535897 said:

Strummer22 said:

Jeremy535897 said:

Salary, dividends and interest (whether covered by dividend allowance or personal savings allowance or not) are included in adjusted net income. You can deduct either £1,000, or actual allowable expenses, from gross rents to arrive at the net rental income, which forms part of adjusted net income. You would not deduct any finance costs. The link you quoted was talking about how adjusted net income impacts the child benefit charge.

The bit I highlighted in bold would suggest to me that the first £1,000 of rental income (technically profit, as noted by Dazed_and_C0nfused) does not form part of adjusted net income. Is that correct?

Your gross rental income is what the tenant pays. Your net rental income (or profit, which is really a term used for trading) is gross rental income less allowable deductions, which can either be £1,000, or your actual allowable expenses if that gives you a better result. There are cases where you are better claiming £500 actual expenses than the £1,000 property allowance, even if that results in higher adjusted net income. Such a case would include the case where you have a significant amount of interest that would give you a greater tax credit at 20% than claiming the property allowance.

Ok I think I understand. As my gross income from property rental is less than £1,000, I don't need to tell HMRC, and it does not contribute to my adjusted net income. Have I understood correctly? 

Jeremy535897

Strummer22 said:

Jeremy535897 said:

Strummer22 said:

Jeremy535897 said:

Salary, dividends and interest (whether covered by dividend allowance or personal savings allowance or not) are included in adjusted net income. You can deduct either £1,000, or actual allowable expenses, from gross rents to arrive at the net rental income, which forms part of adjusted net income. You would not deduct any finance costs. The link you quoted was talking about how adjusted net income impacts the child benefit charge.

The bit I highlighted in bold would suggest to me that the first £1,000 of rental income (technically profit, as noted by Dazed_and_C0nfused) does not form part of adjusted net income. Is that correct?

Your gross rental income is what the tenant pays. Your net rental income (or profit, which is really a term used for trading) is gross rental income less allowable deductions, which can either be £1,000, or your actual allowable expenses if that gives you a better result. There are cases where you are better claiming £500 actual expenses than the £1,000 property allowance, even if that results in higher adjusted net income. Such a case would include the case where you have a significant amount of interest that would give you a greater tax credit at 20% than claiming the property allowance.

Ok I think I understand. As my gross income from property rental is less than £1,000, I don't need to tell HMRC, and it does not contribute to my adjusted net income. Have I understood correctly? 

Yes, that is right.