Rental Income Help

grayj132

Hi,

I currently own a one bedroom flat and am exploring the option of placing it on the rental market but am struggling to understand the income I will make on it and what my tax obligation would be. This is my first property hence the difficulty understanding how it all works when renting as a landlord.

The flat currently costs: (I haven't included bills as that would be the tenants responsibility)
Mortgage - £696
Service Charge - £102
Buildings Insurance is via the Service Charge

I have been advised by an estate agent to list the flat for £850pcm.

Would I only pay tax on the £52 profit I make?

Also, do I receive a tax refund on the interest element of my mortgage?

Many thanks and good weekend all!

caprikid1

Is the mortgage Repayment or interest only ?

Are you a 40% tax payer ?

grayj132

caprikid1 said:

Is the mortgage Repayment or interest only ?

Are you a 40% tax payer ?

It is repayment and would need to change to buy-to-let I assume.

I'm 20% at £38K so would be just under that threshold.

El_Torro

With a mortgage of £696 a month and a rental income of £850 a month you might struggle to find a lender who will give you a Buy To Let mortgage. Or if you want Consent to Let from your current lender you might struggle with that too. 

There are many guides on the internet which can help you calculate what profit you will (potentially) make. Google is your friend.

Mortgage payments do not count as a cost when calculating your costs. You do get a 20% rebate on the interest repayments though (not capital repayments), so if you're a 20% tax payer this is essentially the same thing as counting the interest repayments as a cost. If you're a 40% tax payer then this is more punishing though.

You can also count various things as costs when calculating your profit. For example repairs and gas safety certificates.

grayj132

El_Torro said:

With a mortgage of £696 a month and a rental income of £850 a month you might struggle to find a lender who will give you a Buy To Let mortgage. Or if you want Consent to Let from your current lender you might struggle with that too. 

There are many guides on the internet which can help you calculate what profit you will (potentially) make. Google is your friend.

Mortgage payments do not count as a cost when calculating your costs. You do get a 20% rebate on the interest repayments though (not capital repayments), so if you're a 20% tax payer this is essentially the same thing as counting the interest repayments as a cost. If you're a 40% tax payer then this is more punishing though.

You can also count various things as costs when calculating your profit. For example repairs and gas safety certificates.

Do you think changing the income to £800 would help? 

propertyrental

Re rental income, letting agents can advise but do your own research too. What are other similar local properties being advertised at?

Have you read your lease? Are you allowed to let the property? Do you need freeholder consent?

Are you aware of all your landlord  obligations. Agent can help but you are ultimately liable and agents vary in quality!

Add up all the LL costs involved- yes some are tax allowable, but the costs can still eat into 'profit'' so you need to do a proper detailed budget.

Read

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

km1500

you are allowed to deduct the following from your rental income

1. service charge
2. your mortgage interest at 20%
(note: you are on a repayment mortgage so obviously you cannot deduct the full amount as some of it is repayment of capital - it is only the interest you are allowed to deduct)
3. any fees you pay to a management company estate agents eg to collect rent, find the tenant, to draw up a contract, find references etc
4. any travel to and from the property to sort things out
5. there are lots of other things for example cleaning fees

jonnydeppiwish!

propertyrental said:

Re rental income, letting agents can advise but do your own research too. What are other similar local properties being advertised at?

Have you read your lease? Are you allowed to let the property? Do you need freeholder consent?

Are you aware of all your landlord  obligations. Agent can help but you are ultimately liable and agents vary in quality!

Add up all the LL costs involved- yes some are tax allowable, but the costs can still eat into 'profit'' so you need to do a proper detailed budget.

Read

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

Spoken just like the legend @G_M

propertyrental

jonnydeppiwish! said:

propertyrental said:

Re rental income, letting agents can advise but do your own research too. What are other similar local properties being advertised at?

Have you read your lease? Are you allowed to let the property? Do you need freeholder consent?

Are you aware of all your landlord  obligations. Agent can help but you are ultimately liable and agents vary in quality!

Add up all the LL costs involved- yes some are tax allowable, but the costs can still eat into 'profit'' so you need to do a proper detailed budget.

Read

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

Spoken just like the legend @G_M

Sadly banned long since- hence the stickies going out of date....

But his ghost lives on!

_Penny_Dreadful

grayj132 said:

El_Torro said:

With a mortgage of £696 a month and a rental income of £850 a month you might struggle to find a lender who will give you a Buy To Let mortgage. Or if you want Consent to Let from your current lender you might struggle with that too. 

There are many guides on the internet which can help you calculate what profit you will (potentially) make. Google is your friend.

Mortgage payments do not count as a cost when calculating your costs. You do get a 20% rebate on the interest repayments though (not capital repayments), so if you're a 20% tax payer this is essentially the same thing as counting the interest repayments as a cost. If you're a 40% tax payer then this is more punishing though.

You can also count various things as costs when calculating your profit. For example repairs and gas safety certificates.

Do you think changing the income to £800 would help? 

How would charging less rent help?

Generally speaking you can apply for consent to let when you would like to let out a property with a residential mortgage you initially purchased to live in yourself.  Your lender may or may not grant consent to let.  If granted then it is usually only granted for a finite period of time after which you would be expected to get a BTL mortgage or sell if you cannot pay of the existing residential mortgage.

Landlords usually opt for interest only BTL mortgage where as a rule of thumb you would require at least a 25% deposit and for the rental income to be 125% to 145% of the mortgage payment.

What is your motivation for letting out your current home?  Where will you live?  If you are planning on buying another home to live in and you have enough equity in your current home then a Let to Buy mortgage might be an option.

grayj132

_Penny_Dreadful said:

grayj132 said:

El_Torro said:

With a mortgage of £696 a month and a rental income of £850 a month you might struggle to find a lender who will give you a Buy To Let mortgage. Or if you want Consent to Let from your current lender you might struggle with that too. 

There are many guides on the internet which can help you calculate what profit you will (potentially) make. Google is your friend.

Mortgage payments do not count as a cost when calculating your costs. You do get a 20% rebate on the interest repayments though (not capital repayments), so if you're a 20% tax payer this is essentially the same thing as counting the interest repayments as a cost. If you're a 40% tax payer then this is more punishing though.

You can also count various things as costs when calculating your profit. For example repairs and gas safety certificates.

Do you think changing the income to £800 would help? 

How would charging less rent help?

Generally speaking you can apply for consent to let when you would like to let out a property with a residential mortgage you initially purchased to live in yourself.  Your lender may or may not grant consent to let.  If granted then it is usually only granted for a finite period of time after which you would be expected to get a BTL mortgage or sell if you cannot pay of the existing residential mortgage.

Landlords usually opt for interest only BTL mortgage where as a rule of thumb you would require at least a 25% deposit and for the rental income to be 125% to 145% of the mortgage payment.

What is your motivation for letting out your current home?  Where will you live?  If you are planning on buying another home to live in and you have enough equity in your current home then a Let to Buy mortgage might be an option.

I would be looking at BTL mortgage as view this as a multi-year situation to raise funds for a house and move into the extension of my parents. 

I’m just trying to understand the finances behind it and how much would be going into my pocket after taxes and fees etc.