Idiots question regarding BTL - current and future tax

[sunnybono]

I thought I would consult the fountain of knowledge that is pistonheads on something I thought I understood...

Currently looking to put some money into a BTL and have been running the numbers based on what I understand the tax looks like, but the new regulation (2017 onwards) have thrown me. So, based on my current understanding, and using an oversimplified example, is the tax calculated as below

Figures per month
Interest only mortgage - £500
Rent - £1000
Council tax (paid by me) - £150
Utilities (paid by me) - £100

I believe I can offset 100% off the £500 mortgage, council tax, and utilities against the rent and show a profit of £250 which I will be liable for tax on at my current rate?

From 2017 onwards I'll only be able to offset as below I believe

2017-18 - 75% of the £500, ie £375, and then remainder at 25% of basic rate tax, ie £25, effectively increasingly my tax liability by £100 per month
2018-19 - 50% of £500, remaining of 50% at only 20%
2019-20 - 25% of £500, remaining 75% at 20%
2020-21 - all interest at 20%

What about the other costs? ie bills, council tax etc?

Does that more or less sum it up?

Thanks

[northwest monkey]

At the risk of sounding daft, why would you include the utilities and council tax on a BTL?

They're the responsibility of the tenant.

[Napper]

northwest monkey said:

At the risk of sounding daft, why would you include the utilities and council tax on a BTL?

They're the responsibility of the tenant.

Agree with this. Our tenants pay all bills except mortgage.

FWIW I don't understand the future tax changes either.

[AyBee]

northwest monkey said:

At the risk of sounding daft, why would you include the utilities and council tax on a BTL?

They're the responsibility of the tenant.

I wondered this, but then it all depends on the price you charge as "rent" I suppose - if council tax is £100 utilities are £80 and you charge £250 on top of the "rent", it's easy profit for a bit of extra admin. Until they leave the heating on and have 5 showers per day

[sumo69]

sunnybono said:

I thought I would consult the fountain of knowledge that is pistonheads on something I thought I understood...

Currently looking to put some money into a BTL and have been running the numbers based on what I understand the tax looks like, but the new regulation (2017 onwards) have thrown me. So, based on my current understanding, and using an oversimplified example, is the tax calculated as below

Figures per month
Interest only mortgage - £500
Rent - £1000
Council tax (paid by me) - £150
Utilities (paid by me) - £100

I believe I can offset 100% off the £500 mortgage, council tax, and utilities against the rent and show a profit of £250 which I will be liable for tax on at my current rate?

From 2017 onwards I'll only be able to offset as below I believe

2017-18 - 75% of the £500, ie £375, and then remainder at 25% of basic rate tax, ie £25, effectively increasingly my tax liability by £100 per month
2018-19 - 50% of £500, remaining of 50% at only 20%
2019-20 - 25% of £500, remaining 75% at 20%
2020-21 - all interest at 20%

What about the other costs? ie bills, council tax etc?

Does that more or less sum it up?

Thanks

You will only pay more tax if the rental income is taxed at higher rate.

Assuming your monthly interest of £500, in yr 1 your overall monthly tax increases by £25, Yr 2 £50, Yr 3 £75 and Yr 4 £100.

The only other change is the dropping of the 10% Wear & Tear deduction that can be claimed on furnished properties - a new renewals basis will be in place that applies to all rented properties from Apr 17.

I have seen cases where the tax compared to cash surplus has increased from 11% to 143% once these changes are fully established, so advice should be sought if you are relatively highly geared and/or a higher rate taxpayer.

david

[sunnybono]

Thanks all.

Offsetting council tax and utilies as it would effectively be a holiday/short term let which I believe is allowed.

[Hoonabator]

sumo69 said:

sunnybono said:

I thought I would consult the fountain of knowledge that is pistonheads on something I thought I understood...

Currently looking to put some money into a BTL and have been running the numbers based on what I understand the tax looks like, but the new regulation (2017 onwards) have thrown me. So, based on my current understanding, and using an oversimplified example, is the tax calculated as below

Figures per month
Interest only mortgage - £500
Rent - £1000
Council tax (paid by me) - £150
Utilities (paid by me) - £100

I believe I can offset 100% off the £500 mortgage, council tax, and utilities against the rent and show a profit of £250 which I will be liable for tax on at my current rate?

From 2017 onwards I'll only be able to offset as below I believe

2017-18 - 75% of the £500, ie £375, and then remainder at 25% of basic rate tax, ie £25, effectively increasingly my tax liability by £100 per month
2018-19 - 50% of £500, remaining of 50% at only 20%
2019-20 - 25% of £500, remaining 75% at 20%
2020-21 - all interest at 20%

What about the other costs? ie bills, council tax etc?

Does that more or less sum it up?

Thanks

You will only pay more tax if the rental income is taxed at higher rate.

Assuming your monthly interest of £500, in yr 1 your overall monthly tax increases by £25, Yr 2 £50, Yr 3 £75 and Yr 4 £100.

The only other change is the dropping of the 10% Wear & Tear deduction that can be claimed on furnished properties - a new renewals basis will be in place that applies to all rented properties from Apr 17.

I have seen cases where the tax compared to cash surplus has increased from 11% to 143% once these changes are fully established, so advice should be sought if you are relatively highly geared and/or a higher rate taxpayer.

david

Hi David, a quick question. Does this mean that if your personal tax doesn't enter the higher tax bracket once rental income is included then the old taxation applies?

Thanks.

[Eric Mc]

sunnybono said:

Thanks all.

Offsetting council tax and utilies as it would effectively be a holiday/short term let which I believe is allowed.

If it is a bona fide holiday let, then the new interest claim restrictions do not apply. Holiday Lets are not taxed like Buy to Lets - they are looked on much more as a trading business. The reason for this is because they are closer in concept to a hotel or guest house.

So, check up on the specific rules that apply to Holiday Lettings - they are different in many details compared to simpler Buy to Lets.

[sunnybono]

Thanks. Was not aware they are seen differently.

[Eric Mc]

Yes - you need to do your homework before making any costly mistakes.