Rental property return ?
Discussion
You are taxed on your rental PROFITS. The profit is added to your other taxable income in the year and you will pay tax at the rates that apply to your combined total income.
If you have sufficient income to put you at or near the higher rate threshold, then it is likely that most of the rental profits will be taxed at higher rates. For 2013/14, the higher rate threshold (inclusive of the annual tax allowance of £9,440) is £41,450.
So, if you have a gross salary of £38,000 and rental profits of £6,000 - £2,550 of the rental income will be taxed at 40%
The good news is that rental profits are not subject to National Insurance.
When computing your rental costs, you can deduct relevant landlord expenses -
Council Tax
Water Charges
Building and third party insurance
Advertising
Certain (but not all) legal costs
Accounting fees in respect of preparing rental accounts (but not the completion of the overall tax return)
Agent's fees (if you use an agent)
General repairs and maintenance costs (but NOT major refurbishment or enhancement costs - these are not looked on as rental costs but rather as additional CAPITAL costs which are added to the original cost of the property and will receive tax relief eventually - when carrying out the Capital Gains computation when the property is disposed of).
Cost of replacement furniture (but NOT the cost of the initial furnishing of the property)
If the property is Fully Furnished, the landlord can choose to claim an annual 10% Wear and Tear allowance rather than the real cost of replacing furniture. The 10% relates to 10% of the Gross Annual Rent (before most deductions but LESS council tax and rates paid for by the landlord).
Loan/Mortgage interest can also be claimed as a rental cost (not relevant in your case).
If you have sufficient income to put you at or near the higher rate threshold, then it is likely that most of the rental profits will be taxed at higher rates. For 2013/14, the higher rate threshold (inclusive of the annual tax allowance of £9,440) is £41,450.
So, if you have a gross salary of £38,000 and rental profits of £6,000 - £2,550 of the rental income will be taxed at 40%
The good news is that rental profits are not subject to National Insurance.
When computing your rental costs, you can deduct relevant landlord expenses -
Council Tax
Water Charges
Building and third party insurance
Advertising
Certain (but not all) legal costs
Accounting fees in respect of preparing rental accounts (but not the completion of the overall tax return)
Agent's fees (if you use an agent)
General repairs and maintenance costs (but NOT major refurbishment or enhancement costs - these are not looked on as rental costs but rather as additional CAPITAL costs which are added to the original cost of the property and will receive tax relief eventually - when carrying out the Capital Gains computation when the property is disposed of).
Cost of replacement furniture (but NOT the cost of the initial furnishing of the property)
If the property is Fully Furnished, the landlord can choose to claim an annual 10% Wear and Tear allowance rather than the real cost of replacing furniture. The 10% relates to 10% of the Gross Annual Rent (before most deductions but LESS council tax and rates paid for by the landlord).
Loan/Mortgage interest can also be claimed as a rental cost (not relevant in your case).
It varies. In most cases the tenant is responsible for Council Tax and Water charges but not always. And during periods of unoccupancy, the landlord may have to pay some Council Tax anyway.
There is no "adavantage" or "disadvanatge" to the landlord paying for Council Tax. If he HAS to or decides to, it's up to the landlord to set his rental income amount to a level where he hopes it will cover whatever costs he is liable for - and that may include Council Tax.
It's a commercial decision after all how much you think you can charge your tenants.
There is no "adavantage" or "disadvanatge" to the landlord paying for Council Tax. If he HAS to or decides to, it's up to the landlord to set his rental income amount to a level where he hopes it will cover whatever costs he is liable for - and that may include Council Tax.
It's a commercial decision after all how much you think you can charge your tenants.
Edited by Eric Mc on Tuesday 24th December 12:16
blade7 said:
Assume the property is mortgage free, value around £140k with rental income around £550 PCM, what would a standard rate tax payer lose in tax and what could be claimed against the tax ie accountant/telephone/maintenance/repair costs etc ? Thanks.
thats not sucha great investment , thats a pretty low yieldjonny70 said:
blade7 said:
Assume the property is mortgage free, value around £140k with rental income around £550 PCM, what would a standard rate tax payer lose in tax and what could be claimed against the tax ie accountant/telephone/maintenance/repair costs etc ? Thanks.
thats not sucha great investment , thats a pretty low yieldDon't forget in an ISA or SIPP you need maybe 20% less (or 45% for high rate) due to tax savings.
You can get corpo bonds for 5% tax free.
If you keep your eye out there are other interesting things about like Lloyds ECN's for 7%+ tax free. Blue chip shares yielding 6%+
There is no end of other options.
All passive and with zero manual interaction required for the most part.
Not sure why anyone would want to lumber themselves with managing tenants and a depreciating house.
If you must have housing Id be looking at reits instead IMO.
You can get corpo bonds for 5% tax free.
If you keep your eye out there are other interesting things about like Lloyds ECN's for 7%+ tax free. Blue chip shares yielding 6%+
There is no end of other options.
All passive and with zero manual interaction required for the most part.
Not sure why anyone would want to lumber themselves with managing tenants and a depreciating house.
If you must have housing Id be looking at reits instead IMO.
blade7 said:
What's the risk free alternative with interest rates so low though ?
575 per month on 140 k property isthats about a 4.8% yield .Then you have the agent fees (10%), void periods, building insurance,gas certificate, maintenance and wear and tear , (will it be furnished?)
You may be clsoer to 3% than you think which you can get in the bank/bonds/shares wtih dividends without the agro of having a broken boiler at 10 pm on a friday night etc
gjf764 said:
Eric Mc said:
"Reits"?
Real estate investment trusts, a financial investment rather than buying the properties themselvesI am always a bit dubious when money is handed over to someone to "invest in property" on one's behalf. It all sounds a bit like a "Land Bank" to me - and they are often extremely dodgy.
Eric Mc said:
I thought it was a badly spelled word. There were no capitals, no periods etc to indicate it was a set of initials.
I am always a bit dubious when money is handed over to someone to "invest in property" on one's behalf. It all sounds a bit like a "Land Bank" to me - and they are often extremely dodgy.
You should see the two that have IPO'd in Ireland this year Eric! Look up Green REIT and Hibernia REIT. First one up about 40% in 3 months, latter one up 15% in a month.I am always a bit dubious when money is handed over to someone to "invest in property" on one's behalf. It all sounds a bit like a "Land Bank" to me - and they are often extremely dodgy.
jonny70 said:
blade7 said:
What's the risk free alternative with interest rates so low though ?
575 per month on 140 k property isthats about a 4.8% yield .Then you have the agent fees (10%), void periods, building insurance,gas certificate, maintenance and wear and tear , (will it be furnished?)
You may be clsoer to 3% than you think which you can get in the bank/bonds/shares wtih dividends without the agro of having a broken boiler at 10 pm on a friday night etc
blade7 said:
Siscar said:
blade7 said:
What's the risk free alternative with interest rates so low though ?
Property isn't risk free, things like national savings are much closer to that than property.My point is simply that it's a mistake to think of property as being no or very low risk.
Siscar said:
Yes they are. But it's a trade off between risk and reward. Putting money into national savings is as safe as you get but the returns aren't great. Property is low/medium risk and you can get a better return but you can also lose money. Equities can be high risk but can give high return. And so on.
My point is simply that it's a mistake to think of property as being no or very low risk.
Fair point but my original question didn't intend to suggest property was risk free, just what alternatives were. Thanks for your input anyway My point is simply that it's a mistake to think of property as being no or very low risk.
Plenty of REITS (Eric!) in the FTSE100 so they are not fly by nighters and some have been around for decades.
British Land for one. Incorporated 1856
http://www.britishland.com/about-us/our-business/r...
British Land for one. Incorporated 1856
http://www.britishland.com/about-us/our-business/r...
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