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Tax from renting when most of rent goes into paying off mortgage

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  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    You are on repayment the interest will be going down each month.

    Full mortgage details needed.

    House value would be useful as well.
  • BoGoF
    BoGoF Posts: 7,099 Forumite
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    Your calculations seem very optimistic in that there are a lot of potential expenses you haven't factored in.

    Is there a compelling reason you want to keep hold of this property?
  • BoGoF
    BoGoF Posts: 7,099 Forumite
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    Just read whole thread.....so basically after paying the mortgage you have £10 left to cover all your other expenses and tax. As soon as you pay your monthly insurance you are losing money and you said you dont want to lose money?
  • Typhoon2000
    Typhoon2000 Posts: 1,122 Forumite
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    BoGoF wrote: »
    Just read whole thread.....so basically after paying the mortgage you have £10 left to cover all your other expenses and tax. As soon as you pay your monthly insurance you are losing money and you said you dont want to lose money?

    Hes 'losing' £100 a month but gets his house paid for him. Sounds a good deal.
    What is the going rent for similar properties, maybe you are under pricing the market and can make up that £100.
  • 00ec25
    00ec25 Posts: 9,123 Forumite
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    edited 1 December 2017 at 9:30PM
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    Typhoon2000 wrote: »
    Hes 'losing' £100 a month but gets his house partially paid for him. Sounds [STRIKE]a good[/STRIKE] better than paying it all yourself deal.
    made the corrections for you :D
  • 00ec25
    00ec25 Posts: 9,123 Forumite
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    edited 1 December 2017 at 9:32PM
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    lesterxburnham wrote: »
    I'm following "Example 3: impact of first year of phased reduction of finance cost" from https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

    Can someone please check if my calculations below are right (for year 2017/18 - property let Sept 2017 - March 2018):

    Rental Income £3710 (7 * £530)
    Fincance costs (£300 interest each month so 7*£300*0.75) = £1575
    Other allowable expenses = (buildings insurance 7*£30) = £210

    Property profits = £3710 - £1575 - £210 = £1925

    Less tax reduction for remaining finance
    costs calculated on 25% of finance
    costs (£1575 x 25% = £393.75)

    now, as per example above sums (£1925 and £393.75), would be both multiplied by 0.2 (due to tax bracket I presume?) but I'm on 0.4 so should I multiply both by 0.4?

    so tax will roughly be:
    (£1925 * 0.4) - (£393.75 * 0.4) = £770 - £157.5 = £612.5
    rental profit after non finance costs and partially restricted mortgage interest = 1,925

    tax payable 1,925 x 40% = 770
    add back 25% balance of mortgage interest relief capped at 20%: (7*300= 2100 x 25% = 525. check if £525 is less than the property profits (1,925), yes it is, therefore use finance costs not deducted above in capped relief calculation: 525 x 20% = 105

    net post tax profit in cash terms: 1,925 - tax (-770 + 105) = 1,260
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    BoGoF wrote: »
    Just read whole thread.....so basically after paying the mortgage you have £10 left to cover all your other expenses and tax. As soon as you pay your monthly insurance you are losing money and you said you dont want to lose money?

    The capital part of the mortgage payment is savings/equity so does not count on the P&L.
  • MobileSaver
    MobileSaver Posts: 4,234 Forumite
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    lesterxburnham wrote: »
    All I want is someone to pay off my mortgage and I don't want to lose money.
    Crashy_Time wrote: »
    One can dream I suppose.....

    Well there are over 10,000 users a day on the HPC site who by definition (and completely misguided and flawed logic) have been paying off landlord's mortgages for well over a decade so for many the dream is actually a reality. ;)
    Every generation blames the one before...
    Mike + The Mechanics - The Living Years
  • kinger101
    kinger101 Posts: 6,282 Forumite
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    G_M wrote: »
    Please note that all the links I provided in post 7 are written from an Englandd/Wales perspective.

    You are aware I hope that in Scotland all landlords must be registered with the council?

    It's a shame there's not a McG_M.
    "Real knowledge is to know the extent of one's ignorance" - Confucius
  • BoGoF
    BoGoF Posts: 7,099 Forumite
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    getmore4less wrote: »
    The capital part of the mortgage payment is savings/equity so does not count on the P&L.

    I do realise this. I was talking purely from a monthly real terms cash position and OP saying he did not want to lose money. Unless the property is gaining more value than the monthly cash loss he is losing money.
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