Buy to let. How much will the taxman take?

pmat

Hi all,

I am looking at selling my home in the near future but where I live people are finding it very difficult to sell their properties. There is going to be huge industrial investment in the area during the next 6-10 years and therefore lots of contractors.

I am considering obtaing a Buy-to-Let mortgage for my current property and then obtaining a residential mortgage for 'new' home.

The income for renting out the house is expected to much greater than what will be required to pay the B-t-L mortgage. I have yet to look into the facts and figures but does anyone know how much the taxman will expect to cream off it? I ain't looking to make any money out of it but i'll be damned if I am gonna do it at a loss!

many thanks

Dave

Pal

The taxman only taxes the "profit" that you make. So you pay tax on your rent less your total expenses including mortgage interest (but not any repayment element of your mortgage).

rozeepozee

And you'll also have to pay 40% Capital Gains Tax when you sell on the increase in value from the time you rent it out (you don't pay CGT on the sale of your residential property)

zzzLazyDaisy

rozeepozee wrote:

And you'll also have to pay 40% Capital Gains Tax when you sell on the increase in value from the time you rent it out (you don't pay CGT on the sale of your residential property)

Is that right? I understood that there is also no CGT for the first three years after the property ceases to be your main residence.

rozeepozee

Hmmm, you may be right, zzzLazyDaisy. I didn't think about it being sold in the short term. Am happy to be corrected. I thought there was only no CGT payable if you moved back in within 3 years (which is what I've done in the past). Anyone know the answer?

pmat

Pal wrote:

The taxman only taxes the "profit" that you make. So you pay tax on your rent less your total expenses including mortgage interest (but not any repayment element of your mortgage).

hmmmm, so there is no chance of paying off the house in full over 10 years using all/most of the rent income? are the taxmans' figures based on a 25year mortgage?

Ian_W

pmat wrote
are the taxmans' figures based on a 25year mortgage?

No, they're based on the interest you actually pay and then claim as a business expense on your Sa form - you need to keep records, obviously.

And I'm almost sure, but you'd need to check with an accountant, that if after deducting all legit operating costs [inc interest] from your rental income you make a loss - you can offset the loss against your other taxable income. So you could end up paying less tax in your day job or getting a refund if you're PAYE. If I'm right, only applies to UK BTL's not overseas property.

MarkyMarkD

You can't offset rental losses against other income.

But if you have more than one rental property, you can offset against the loss on one property against the profit on other properties.

And you can carry forward your rental losses until you do make some rental profits, and then offset the loss.

Ian_W

Stand corrected, said I wasn't certain, thanks.

sarahlouise210

Ian_W wrote:

No, they're based on the interest you actually pay and then claim as a business expense on your Sa form - you need to keep records, obviously.

And I'm almost sure, but you'd need to check with an accountant, that if after deducting all legit operating costs [inc interest] from your rental income you make a loss - you can offset the loss against your other taxable income. So you could end up paying less tax in your day job or getting a refund if you're PAYE. If I'm right, only applies to UK BTL's not overseas property.

You cannot offset a loss on rental income against your PAYE income.. you can however carry the loss forward to set against any loss you make in a future year on rental income. The only exception to this is if your rental income is a furnished holiday let as this is considered a business and not an investment

sarahlouise210

you 2 obviously type quicker than me!