Accidental Landlord
Discussion
Morning
I've taken a new job away from home which will involve moving, but it doesnt make sense to sell my house just yet.
Unfortunatly that seems to involve an absolute mine field and a lot of cost. I am already a higher rate tax payer, and the rental income of £950/m will push me above £60k/yr income - not massive, but big enough for the Scottish government to think I can afford to pay 41% as opposed to being in England paying 40%. The mortgage is £500/m, and Im intending on letting it out fully managed with an estate agent, which will cost 10% of the rental income per month. While I can't offset the interest against tax, am I right in thinking I can offset all other costs (estate agent fees etc) against the tax I would otherwise pay? In which case, then the fully managed service is costing me nothing - I either pay it as tax, or pay it to the EA?
Alternatively if anyone has a guide on how this works for the young, dumb and stupid that would be helpful!
I've taken a new job away from home which will involve moving, but it doesnt make sense to sell my house just yet.
Unfortunatly that seems to involve an absolute mine field and a lot of cost. I am already a higher rate tax payer, and the rental income of £950/m will push me above £60k/yr income - not massive, but big enough for the Scottish government to think I can afford to pay 41% as opposed to being in England paying 40%. The mortgage is £500/m, and Im intending on letting it out fully managed with an estate agent, which will cost 10% of the rental income per month. While I can't offset the interest against tax, am I right in thinking I can offset all other costs (estate agent fees etc) against the tax I would otherwise pay? In which case, then the fully managed service is costing me nothing - I either pay it as tax, or pay it to the EA?
Alternatively if anyone has a guide on how this works for the young, dumb and stupid that would be helpful!
For the moment, you will need to prepare rental income and expenditure accounts and submit these figures to HMRC as part of your Self Assessment tax return.
The plan was to abolish Self Assessment tax returns with effect from 5 days ago and require landlords to submit quarterly rental income and expenditure figures using 3rd party commercial software. Thankfully, that plan has been postponed for the moment but it is likely that it will come about - possibly as early as April 2020.
As an side, t new restrictions on the allowabillity of loan interest as a rental cost came into effect on 6 April.
The plan was to abolish Self Assessment tax returns with effect from 5 days ago and require landlords to submit quarterly rental income and expenditure figures using 3rd party commercial software. Thankfully, that plan has been postponed for the moment but it is likely that it will come about - possibly as early as April 2020.
As an side, t new restrictions on the allowabillity of loan interest as a rental cost came into effect on 6 April.
It's exactly how I became a landlord many years ago. Being able to claim interest payments is gradually phasing out. Especially as a higher rate payer, there's not much advantage left there for you post 2020. All legitimate and reasonable ongoing expenses are claimable. One tip I can offer is that this includes travelling to visit & inspect the property. It's up to you how often you visit and within reason how you expense it, including bringing family along if that's what you need to do.
The regs change over the years so if this may be a longer term thing, it's worth hooking up with one of the landlord's associations (or at least a forum newsletter) so you keep up with legislation on landlord responsibilities & tax. Your estate agent won't be much help with these after they've grabbed your commission.
Make sure you get your lender to agree to the let. They'll have a process for it.
The regs change over the years so if this may be a longer term thing, it's worth hooking up with one of the landlord's associations (or at least a forum newsletter) so you keep up with legislation on landlord responsibilities & tax. Your estate agent won't be much help with these after they've grabbed your commission.
Make sure you get your lender to agree to the let. They'll have a process for it.
Condi said:
Morning
In which case, then the fully managed service is costing me nothing - I either pay it as tax, or pay it to the EA?
Just being pedantic, but it doesn't cost you nothing.In which case, then the fully managed service is costing me nothing - I either pay it as tax, or pay it to the EA?
You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
CzechItOut said:
Just being pedantic, but it doesn't cost you nothing.
You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
The usual error in this "business" calculation is the landlord not costing out their own hours. Depending on your day rate, you may still be quids in.You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
CzechItOut said:
Just being pedantic, but it doesn't cost you nothing.
You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
Don't forget that the management fees will probably be subject to 20% VAT, costing a further £19 a month bringing the net down to £493.24 after tax. You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
recordman said:
CzechItOut said:
Just being pedantic, but it doesn't cost you nothing.
You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
Don't forget that the management fees will probably be subject to 20% VAT, costing a further £19 a month bringing the net down to £493.24 after tax. You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
I thought things like the management fees etc were offset against income not profit? I pay 41% tax on the income, less any allowable expenses such as EA fees, redecorating costs, insurance etc?
Condi said:
recordman said:
CzechItOut said:
Just being pedantic, but it doesn't cost you nothing.
You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
Don't forget that the management fees will probably be subject to 20% VAT, costing a further £19 a month bringing the net down to £493.24 after tax. You're £950 monthly rental minus 41% tax comes to £560.50
You're £950 monthly rental minus 10% management fees (£95) comes to £855. £855 minus 41% tax comes to £504.45
So you management fees reduce your net income by £56.05 a month.
I thought things like the management fees etc were offset against income not profit? I pay 41% tax on the income, less any allowable expenses such as EA fees, redecorating costs, insurance etc?
Otherwise you'd pay tax on the full £950 (£950 minus 41% equals £560.50) and then deduct the £95 costs leaving you with just £465.50.
Condi said:
Confused?
I thought things like the management fees etc were offset against income not profit? I pay 41% tax on the income, less any allowable expenses such as EA fees, redecorating costs, insurance etc?
Same difference.I thought things like the management fees etc were offset against income not profit? I pay 41% tax on the income, less any allowable expenses such as EA fees, redecorating costs, insurance etc?
Landlords need to prepare a simple Income and Expenditure account showing their Gross Rental Income from their tenants less the allowable costs they incur in operating as a landlord for that property.
A simple Income and Expenditure account (using sample figures) would look a bit like this -
Gross Rental Income - £10,000
Less Expenditure
Agents fees and commissions - £840
Repairs and maintenance - £1,000
Ground rents - £200
Landlord Insurance - £300
Gas and Electricity Certificates - £100
Replacement furniture (if a Furnished Let) - £1,000
Loan interest and finance costs - £1,000
Total Expenditure - £4,440
Rental Profits - £5,560
Up until 5 April 2018, the rental profits as above would have been added to your other income from all sources in order that you would pay the appropriate Income Tax arising on the rental income.
The change since 5 April this year is that you will not get the full tax relief for the "Loan Interest and finance costs" amount.
CzechItOut said:
Your costs are tax deductible, which means you deduct them from your income BEFORE you pay tax.
Otherwise you'd pay tax on the full £950 (£950 minus 41% equals £560.50) and then deduct the £95 costs leaving you with just £465.50.
Ok thanks. Otherwise you'd pay tax on the full £950 (£950 minus 41% equals £560.50) and then deduct the £95 costs leaving you with just £465.50.
I have no idea how on earth anyone makes a living/any money from doing this.
At 41% tax, leaving me with 560 quid per month, it only just covers the mortgage, fees, insurance etc. Might be alright if you can afford to buy a property in cash, but otherwise I have no idea why BTL is popular? Certainly wouldnt provide any means to live. Its only a 4% return before tax at current values. Anyway, just a feature of circumstance and as long as it pays the mortgage and the house isnt f
ked at the end I'll be happy enough. Condi said:
Ok thanks.
I have no idea how on earth anyone makes a living/any money from doing this.
At 41% tax, leaving me with 560 quid per month, it only just covers the mortgage, fees, insurance etc. Might be alright if you can afford to buy a property in cash, but otherwise I have no idea why BTL is popular? Certainly wouldnt provide any means to live. Its only a 4% return before tax at current values. Anyway, just a feature of circumstance and as long as it pays the mortgage and the house isnt fked at the end I'll be happy enough.
No, you deduct the costs (mortgage interest, fees, insurance etc) BEFORE tax, so from the £950 a month you receive in rent.I have no idea how on earth anyone makes a living/any money from doing this.
At 41% tax, leaving me with 560 quid per month, it only just covers the mortgage, fees, insurance etc. Might be alright if you can afford to buy a property in cash, but otherwise I have no idea why BTL is popular? Certainly wouldnt provide any means to live. Its only a 4% return before tax at current values. Anyway, just a feature of circumstance and as long as it pays the mortgage and the house isnt f
ked at the end I'll be happy enough. You only pay tax on what is left of your income AFTER costs have been deducted.
Condi said:
Ok thanks.
I have no idea how on earth anyone makes a living/any money from doing this.
At 41% tax, leaving me with 560 quid per month, it only just covers the mortgage, fees, insurance etc. Might be alright if you can afford to buy a property in cash, but otherwise I have no idea why BTL is popular? Certainly wouldnt provide any means to live. Its only a 4% return before tax at current values. Anyway, just a feature of circumstance and as long as it pays the mortgage and the house isnt fked at the end I'll be happy enough.
Because some landlords don't work out the figures correctly. If you are on a buy-to-let mortgage the mortgage fess can add £80 to £100 a month too. Most then don't also appreciate that inflation also has an impact on both the rental and final sale value.I have no idea how on earth anyone makes a living/any money from doing this.
At 41% tax, leaving me with 560 quid per month, it only just covers the mortgage, fees, insurance etc. Might be alright if you can afford to buy a property in cash, but otherwise I have no idea why BTL is popular? Certainly wouldnt provide any means to live. Its only a 4% return before tax at current values. Anyway, just a feature of circumstance and as long as it pays the mortgage and the house isnt f
ked at the end I'll be happy enough. Edited by rustyuk on Thursday 12th April 12:17
Condi said:
Ok thanks.
I have no idea how on earth anyone makes a living/any money from doing this.
At 41% tax, leaving me with 560 quid per month, it only just covers the mortgage, fees, insurance etc. Might be alright if you can afford to buy a property in cash, but otherwise I have no idea why BTL is popular? Certainly wouldnt provide any means to live. Its only a 4% return before tax at current values. Anyway, just a feature of circumstance and as long as it pays the mortgage and the house isnt fked at the end I'll be happy enough.
I thought that too. No one declares it is the answer . I have no idea how on earth anyone makes a living/any money from doing this.
At 41% tax, leaving me with 560 quid per month, it only just covers the mortgage, fees, insurance etc. Might be alright if you can afford to buy a property in cash, but otherwise I have no idea why BTL is popular? Certainly wouldnt provide any means to live. Its only a 4% return before tax at current values. Anyway, just a feature of circumstance and as long as it pays the mortgage and the house isnt f
ked at the end I'll be happy enough. Don't believe me?: 50% here! https://www.theguardian.com/business/2017/aug/13/h...
Ridiculous
Edited by BluePurpleRed on Thursday 12th April 12:25
CzechItOut said:
No, you deduct the costs (mortgage interest, fees, insurance etc) BEFORE tax, so from the £950 a month you receive in rent.
You only pay tax on what is left of your income AFTER costs have been deducted.
Yes I understand that, but even following the tax relief on mortgage interest, fees etc, it doesnt exactly leave a pot of gold at the end of the rainbow. It provides just enough to maintain the property, pay the mortgage, and little else. You only pay tax on what is left of your income AFTER costs have been deducted.
Condi said:
Yes I understand that, but even following the tax relief on mortgage interest, fees etc, it doesnt exactly leave a pot of gold at the end of the rainbow. It provides just enough to maintain the property, pay the mortgage, and little else.
OK cool, I wanted to make sure I wasn't leading you up the garden path!You're right, there's no pot of gold. Many landlords enjoyed capital gains, but even that isn't something you can rely on nowadays.
Condi said:
Yes I understand that, but even following the tax relief on mortgage interest, fees etc, it doesnt exactly leave a pot of gold at the end of the rainbow. It provides just enough to maintain the property, pay the mortgage, and little else.
It would work long term if the underlying outpaces other investments. Many seek capital growth over income. If that plays out, income long term steps up as your financing drops back. That said, I wouldn't enter the mkt now.And of course, if your property does realise a Capital Gain as and when you eventually sell it, you will have to pay Capital Gains Tax on the gain.
The good news is that there are some pretty good reliefs available under the Capital Gains Tax rules - especially if the property was once your main residence.
The good news is that there are some pretty good reliefs available under the Capital Gains Tax rules - especially if the property was once your main residence.
We became accidental landlords due to us moving where work wanted me to go. It depends on all sorts of factors such as if the house is likely to gain a lot of value, what sort of tenants you would likely get etc.
For us we intended in moving back in eventually but are staying in the SW and have just accepted an offer after renting it out for 6 years. It was in the SE so we made a decent capital gain and the tenants repaid a decent chunk of our mortgage. Under the new guidelines I'm not sure I'd do it again.
-You'll pay more interest if you let it out.
-When your initial period expires you'll be stuck on the SMR or have to get a BTL mortgage
-Letting property miles away can be a PITA even if you have a managed service
-If its empty for any period you have to pay council tax
I'd try it for a year and then see how you feel then
For us we intended in moving back in eventually but are staying in the SW and have just accepted an offer after renting it out for 6 years. It was in the SE so we made a decent capital gain and the tenants repaid a decent chunk of our mortgage. Under the new guidelines I'm not sure I'd do it again.
-You'll pay more interest if you let it out.
-When your initial period expires you'll be stuck on the SMR or have to get a BTL mortgage
-Letting property miles away can be a PITA even if you have a managed service
-If its empty for any period you have to pay council tax
I'd try it for a year and then see how you feel then
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