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

lesterxburnham · 1 December 2017 at 12:18AM

I appreciate your concerns so to prevent topic going even more into wrong direction - I'm registered with council, I've got electricity safety certificate & PAT (no gas in flat so no need for gas safety certificate), mains powered smoke alarms (and fire blanket!), gave tenants required notices for assured shorthold tenancy agreement and got signed tenancy agreements + buildings and contents insurance in place.

yes, I've got repayment mortgage and I don't treat renting this property as my income, I've got a job that pays me well enough. All I want is someone to pay off my mortgage and I don't want to lose money. Which is the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC.

All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.

boliston · 1 December 2017 at 12:31AM

I would have thought service charges and ground rent would normally be quite a large cost to consider when setting rent levels. Another big cost to consider will be void periods, so you will need to set rents to accommodate these, and you will also need to plan for possible non payment of rent and recovery costs, as well as the costs of regaining possession in some cases.

00ec25 · 1 December 2017 at 12:43AM

lesterxburnham wrote: »

All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.

the HMRC guides show you how to calculate net profit so how come you cannot work them using smaller figures to arrive at zero net profit and thus no tax payable? BTW that will be rather hard since you cannot be certain that the rent will be paid every month or that costs won't increase or you have a one off "biggie". More importantly your start number, the rent, is, to an extent, outside your control since it must be based on what the market will pay or you won't have a tenant to start with.

I can understand you wanting to be "cheap" if that means you get a tenant who stays "forever" because they are on to such a good thing, and you are higher/additional rate taxpayer so "don't" ? need the money, nonetheless that is a stupid approach to being a LL

Crashy_Time · 1 December 2017 at 1:58AM

lesterxburnham wrote: »

I appreciate your concerns so to prevent topic going even more into wrong direction - I'm registered with council, I've got electricity safety certificate & PAT (no gas in flat so no need for gas safety certificate), mains powered smoke alarms (and fire blanket!), gave tenants required notices for assured shorthold tenancy agreement and got signed tenancy agreements + buildings and contents insurance in place.

yes, I've got repayment mortgage and I don't treat renting this property as my income, I've got a job that pays me well enough. All I want is someone to pay off my mortgage and I don't want to lose money. Which is the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC.

All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.

One can dream I suppose.....

Cakeguts · 1 December 2017 at 2:26AM

lesterxburnham wrote: »

I appreciate your concerns so to prevent topic going even more into wrong direction - I'm registered with council, I've got electricity safety certificate & PAT (no gas in flat so no need for gas safety certificate), mains powered smoke alarms (and fire blanket!), gave tenants required notices for assured shorthold tenancy agreement and got signed tenancy agreements + buildings and contents insurance in place.

yes, I've got repayment mortgage and I don't treat renting this property as my income, I've got a job that pays me well enough. All I want is someone to pay off my mortgage and I don't want to lose money. Which is the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC.

All of the examples I've seen on HMRC page are for people who treat letting as considerable income, can't find anything that illustrates my circumstances.

That is probably because people don't try to run a business that keeps making a loss which is what you are trying to do.

You have a property that is not suitable as a rental property because it doesn't let for enough money for you to cover your costs. You can't charge more than someone is prepared to pay so you are going to just continue to lose money. The only way to stop this is to sell the property.

If you want a rental property you need to buy a property for that purpose where you can make some money. The one you have at the moment is not going to do that. What people in your position do is they sell it. Most people don't want to run a business that constantly makes a loss. Letting property is a business there is no point in doing it if you can't make any money.

getmore4less · 1 December 2017 at 7:46AM

You won't get tax relief on your mortgage, you only get it on the interest.

you have said,

Another question is whether I need to register at all if I charge £530 for rent out of which £520 is going into paying off the mortgage on that property?

lets do a guess 25years 3% that's £110k paying £520pm

on repayment that's £275 pm interest(decreasing over time)

you then say

'm on 40% tax bracket. How does it affect my HMRC obligations?

Easy rough way to work this is 40% on £520 and 20% tax relief on £275 that will get you close to where it is going to be soon.

You are going to owe the tax man around (£208-£55) £150.
you might get that lower with some expenses but that just makes the net position even worse

someone can do the proper numbers if you provide the mortgage details.

Edi81 · 1 December 2017 at 8:04AM

Visit an accountant.
Renting out a property is not something to be taken lightly.
Remember, once you register for self assessment the submissions will also need to cover your PAYE employment income.

You sound very naive about the whole process but you need to get this sorted. It may result that renting out isn’t worth it for you.

Mutton_Geoff · 1 December 2017 at 8:30AM

lesterxburnham wrote: »

the reason why I'm asking how to figure out how much rent should I charge so I'm on zero after paying tax and whatever else I need to pay to HMRC

You are looking at this the wrong way round. The rent you can charge is determined by the market. If you are too expensive, you will not be able to let, if you are too cheap, then unless you have overriding reasons for doing so, you will be throwing money away.

If you charge market rate, and can make a profit, then that profit can be used to pay down your debt. A reducing amount of interest using a repayment mortgage whilst you can still claim mortgage interest against tax is not good business sense.

How does your £530 rent charge compare with similar properties in the area?

Crashy_Time · 1 December 2017 at 11:35AM

Change the colour scheme, move the couch maybe, and charge £630?

lesterxburnham · 1 December 2017 at 8:15PM

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

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

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