Legally Paying Tax on a Rental house.
Discussion
Put simply - around 18 months I bought and fully renovated what I thought was going to be my 'forever' home. Fast forward to now and a few things have changed. Mum and Dad are moving house to a slightly larger home for their retirement so I'm going to be buying their house as it's technically my 'home'. - It does have a garage too which does help swinging it!
Now then - I'm thinking of renting my current house rather than selling it. Agent has been round and I'm opting for a Fully managed let as my parents house (which i'm buying) is in the same village and I don't want the people in the house knowing I own it.
He has said that I'd be looking at £550 PCM for rent with him taking 8% (£44) out for fully managed setup. My question is (after trawling Gov.UK website and still none the wiser!)
So my QUESTION - Do I need to pay tax on the £504 that's left over BEFORE paying my mortgage? Or do I pay it on what's left after paying mortgage payment and any maintenance etc.
To clarify - I'm not looking to fiddle the system or anything of that nature. I'm looking to do it 100% legally but obviously paying least possible !
Talk to me PH'ers!
Now then - I'm thinking of renting my current house rather than selling it. Agent has been round and I'm opting for a Fully managed let as my parents house (which i'm buying) is in the same village and I don't want the people in the house knowing I own it.
He has said that I'd be looking at £550 PCM for rent with him taking 8% (£44) out for fully managed setup. My question is (after trawling Gov.UK website and still none the wiser!)
So my QUESTION - Do I need to pay tax on the £504 that's left over BEFORE paying my mortgage? Or do I pay it on what's left after paying mortgage payment and any maintenance etc.
To clarify - I'm not looking to fiddle the system or anything of that nature. I'm looking to do it 100% legally but obviously paying least possible !
Talk to me PH'ers!
errr afaik you only pay tax on the amount after all allowable deductions have been taken into account so - (depending if 20% rate or 40% rate payer)
Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
Matt p said:
errr afaik you only pay tax on the amount after all allowable deductions have been taken into account so - (depending if 20% rate or 40% rate payer)
Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
Thanks for the reply! Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
I'm definitely within the 20% band for taxing. I was confused as to what the 'mortgage interest' was though - Is it my 'full' mortgage payment or is it based on an interest only mortgage on the rental house (Like a lot of BTLs have) or just the small interest rate i have on my mortgage? something like 3% i'm sure.
I was aware of the 20% flat in a couple of years time - but havent quite fully understood the difference it will make to a lower priced property just yet - doesn't look like it will affect me too much (hopefully!) A lot of otherwise very useful stuff on the GOV site especially the case studies explaining the payments and what can be used as tax relief etc.
Landlords pay income tax (but not NI) on their rental PROFITS - not on their gross rental takings.
Rental profits are calculated by deducting allowable landlord expenses against the gross rental income.
Some of those expense items have been listed above.
As soon as the property starts being rented out, you need to notify HMRC so that you can be set up to complete a Self Assessment tax return each year. At the moment, that is the way in which landlords return their rental profits for each tax year. If you already submit Self Assessment tax returns then you just need to include the rental income and expenditure details as and when they need to be returned on your next tax return.
It is highly likely that this is going to change in the next few years. Up until July 2017, the plan was that Self Assessment would cease on 5 April 2018 and that for tax years 2018/19 onwards would landlords would have to start submitting quarterly rental profit figures to HMRC using third party commercial software.
This plan has been postponed for the moment but has been slated for implementation from 6 April 2020. So bear that in mind.
Rental profits are calculated by deducting allowable landlord expenses against the gross rental income.
Some of those expense items have been listed above.
As soon as the property starts being rented out, you need to notify HMRC so that you can be set up to complete a Self Assessment tax return each year. At the moment, that is the way in which landlords return their rental profits for each tax year. If you already submit Self Assessment tax returns then you just need to include the rental income and expenditure details as and when they need to be returned on your next tax return.
It is highly likely that this is going to change in the next few years. Up until July 2017, the plan was that Self Assessment would cease on 5 April 2018 and that for tax years 2018/19 onwards would landlords would have to start submitting quarterly rental profit figures to HMRC using third party commercial software.
This plan has been postponed for the moment but has been slated for implementation from 6 April 2020. So bear that in mind.
Eric Mc said:
Landlords pay income tax (but not NI) on their rental PROFITS - not on their gross rental takings.
Rental profits are calculated by deducting allowable landlord expenses against the gross rental income.
Some of those expense items have been listed above.
As soon as the property starts being rented out, you need to notify HMRC so that you can be set up to complete a Self Assessment tax return each year. At the moment, that is the way in which landlords return their rental profits for each tax year. If you already submit Self Assessment tax returns then you just need to include the rental income and expenditure details as and when they need to be returned on your next tax return.
It is highly likely that this is going to change in the next few years. Up until July 2017, the plan was that Self Assessment would cease on 5 April 2018 and that for tax years 2018/19 onwards would landlords would have to start submitting quarterly rental profit figures to HMRC using third party commercial software.
This plan has been postponed for the moment but has been slated for implementation from 6 April 2020. So bear that in mind.
Thanks - Nice and simple. That helps a lot - Could you not write the articles for GOV.uk please?Rental profits are calculated by deducting allowable landlord expenses against the gross rental income.
Some of those expense items have been listed above.
As soon as the property starts being rented out, you need to notify HMRC so that you can be set up to complete a Self Assessment tax return each year. At the moment, that is the way in which landlords return their rental profits for each tax year. If you already submit Self Assessment tax returns then you just need to include the rental income and expenditure details as and when they need to be returned on your next tax return.
It is highly likely that this is going to change in the next few years. Up until July 2017, the plan was that Self Assessment would cease on 5 April 2018 and that for tax years 2018/19 onwards would landlords would have to start submitting quarterly rental profit figures to HMRC using third party commercial software.
This plan has been postponed for the moment but has been slated for implementation from 6 April 2020. So bear that in mind.
I was aware on the self assessment but never done one before. thanks again
there is a calculator on the telegraph website to see what you will be paying now and also how it changes over the next few years,
http://www.telegraph.co.uk/investing/buy-to-let/ne...
http://www.telegraph.co.uk/investing/buy-to-let/ne...
Regarding what you can claim in respect of payments to the mortgage company, Mortgage interest is mortgage interest i.e. it is the interest charge on the borrowing you have taken out to but the property. Mortgages fall into two main categories, Repayment Mortgages and Interest Only Mortgages.
In a Repayment Mortgage, the monthly payment to the mortgage company will consist of two elements - a repayment of the borrowed amount (the capital) and the interest .
On an Interest Only mortgage, the monthly repayment will be (as it says), ALL interest.
In order to know what to claim as a deduction against the rental income, you obviously need to know what type of mortgage you've got and how much actual interest was charged on the mortgage during the tax year in question. Do not assume the the monthly payment to the mortgage company is all interest.
Other finance charges are also allowed, such as fees and commissions that lenders might charge from time to time..
If the monthly payment amount has a capital repayment aspect to it, you CANNOT offset that element of the payments against your rental income.
The types of costs landlords can claim are -
Repairs and maintenance of the property
Insurance paid by the landlord
Council tax and water charges p[aid by the landlord
Light and heat costs paid by the landlord
TV Licence costs paid by the landlord
Agents fees and commissions
Advertising (usually for tenants)
Management costs incurred
Legal fees regarding dealing with tenants
Legal fees regarding RENEWING rental agreements (but not setting them up initially)
Accounting fees (if you sue an accountant to assist in the preparation of the rental accounts)
Mortgage Interest and finance charges
As was mentioned previously, new rules now in effect mean that full tax relief is no longer available for claiming mortgage interest and charges - but they can still be claimed to some extent and you will need to work out the amounts.
In a Repayment Mortgage, the monthly payment to the mortgage company will consist of two elements - a repayment of the borrowed amount (the capital) and the interest .
On an Interest Only mortgage, the monthly repayment will be (as it says), ALL interest.
In order to know what to claim as a deduction against the rental income, you obviously need to know what type of mortgage you've got and how much actual interest was charged on the mortgage during the tax year in question. Do not assume the the monthly payment to the mortgage company is all interest.
Other finance charges are also allowed, such as fees and commissions that lenders might charge from time to time..
If the monthly payment amount has a capital repayment aspect to it, you CANNOT offset that element of the payments against your rental income.
The types of costs landlords can claim are -
Repairs and maintenance of the property
Insurance paid by the landlord
Council tax and water charges p[aid by the landlord
Light and heat costs paid by the landlord
TV Licence costs paid by the landlord
Agents fees and commissions
Advertising (usually for tenants)
Management costs incurred
Legal fees regarding dealing with tenants
Legal fees regarding RENEWING rental agreements (but not setting them up initially)
Accounting fees (if you sue an accountant to assist in the preparation of the rental accounts)
Mortgage Interest and finance charges
As was mentioned previously, new rules now in effect mean that full tax relief is no longer available for claiming mortgage interest and charges - but they can still be claimed to some extent and you will need to work out the amounts.
dionbee93 said:
Matt p said:
errr afaik you only pay tax on the amount after all allowable deductions have been taken into account so - (depending if 20% rate or 40% rate payer)
Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
Thanks for the reply! Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
I'm definitely within the 20% band for taxing. I was confused as to what the 'mortgage interest' was though - Is it my 'full' mortgage payment or is it based on an interest only mortgage on the rental house (Like a lot of BTLs have) or just the small interest rate i have on my mortgage? something like 3% i'm sure.
I was aware of the 20% flat in a couple of years time - but havent quite fully understood the difference it will make to a lower priced property just yet - doesn't look like it will affect me too much (hopefully!) A lot of otherwise very useful stuff on the GOV site especially the case studies explaining the payments and what can be used as tax relief etc.
Only allowed to recive relief on the interest accrued over the year. In my case it goes up around £30 every month until it’s just a flat 20% of the total interest.
Matt p said:
dionbee93 said:
Matt p said:
errr afaik you only pay tax on the amount after all allowable deductions have been taken into account so - (depending if 20% rate or 40% rate payer)
Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
Thanks for the reply! Letting agents fees
Mortgage interest rate relief which is getting tapered down to to a flat 20% in a couple of years.
Fair wear and tear if fully furnished etc.
There maybe a few others but that was just going off the gov website like you.
I'm definitely within the 20% band for taxing. I was confused as to what the 'mortgage interest' was though - Is it my 'full' mortgage payment or is it based on an interest only mortgage on the rental house (Like a lot of BTLs have) or just the small interest rate i have on my mortgage? something like 3% i'm sure.
I was aware of the 20% flat in a couple of years time - but havent quite fully understood the difference it will make to a lower priced property just yet - doesn't look like it will affect me too much (hopefully!) A lot of otherwise very useful stuff on the GOV site especially the case studies explaining the payments and what can be used as tax relief etc.
Only allowed to receive ive relief on the interest accrued over the year. In my case it goes up around £30 every month until it’s just a flat 20% of the total interest.
dionbee93 said:
Thanks both of you - My mortgage is currently a repayment mortgage because it was planned as my forever home but I have been granted permission to let from my mortgage provider.
You should be able to obtain from your mortgage provider an end of tax year statement which will break out the interest and the capital elements of the total sum you've repaid over the year. You use the interest figure for your deductible. Greg66 said:
dionbee93 said:
Thanks both of you - My mortgage is currently a repayment mortgage because it was planned as my forever home but I have been granted permission to let from my mortgage provider.
You should be able to obtain from your mortgage provider an end of tax year statement which will break out the interest and the capital elements of the total sum you've repaid over the year. You use the interest figure for your deductible. Decades ago, when homeowners could get tax relief under the old MIRAS scheme, they issued such statements automatically.
I don't know the answer, but I would also be asking whether there is anything you should do now to help a future capital gains calculation. Any price rise when it's been your home is exempt. Any price rise while being rented is subjected to capital gains tax. Would getting a formal valuation be of any benefit?
dionbee93 said:
Now then - I'm thinking of renting my current house rather than selling it. Agent has been round and I'm opting for a Fully managed let as my parents house (which i'm buying) is in the same village and I don't want the people in the house knowing I own it.
Talk to me PH'ers!
Watch out on not wanting to disclose your address as it should be in the tenancy agreement. You could ask the management agent to put their address but potential for issues:Talk to me PH'ers!
http://burywalkers.com/does-a-landlord-have-to-use...
alock said:
I don't know the answer, but I would also be asking whether there is anything you should do now to help a future capital gains calculation. Any price rise when it's been your home is exempt. Any price rise while being rented is subjected to capital gains tax. Would getting a formal valuation be of any benefit?
How would that help?CGT is calculated by subtracting the original purchase price from the eventual selling price.
If the property was the main residence for a period, then the calculated gain is time apportioned between the period it was the main residence and the period it wasn't. HMRC also throws in a free additional 18 months to bump up the "Main Residence" period.
The resultant figure is called the "Apportioned Gain".
You can also get an additional "Commercial Lettings Relief " (up to £40,000).
And finally there is the annual Capital Gains Tax allowance which is currently £11,300.
dionbee93 said:
I'm opting for a Fully managed let as my parents house (which i'm buying) is in the same village and I don't want the people in the house knowing I own it.
Will let others advise on the tax part, but don't forget that your name will be on the tenancy agreement the tenants sign, so you won't be able to stay completely incognito.Gassing Station | Finance | Top of Page | What's New | My Stuff