Buy to Let Tax - Help

[andy_george]

Hi

I was wondering if someone can give my partner and I some help.

We are looking to buy a flat to rent but have no idea of the tax implications involved in this.

Can anyone advise?

Many thanks

[MrShed]

Do you have any specific question on it? Obviously it is difficult to sum up the "tax implications". Basically yes you will have to pay tax on the income generated from renting out, but you can offset it against several things, for example you can claim the tax back for repairs and maintenance of the property, mortgage interest payments etc....these are the main two which spring to mind!

[andy_george]

Thank you for your quick reply.

If for example we bought a property and rented it for £450 a month, mortgage payments were £350 a month.

After we have done any repairs etc and paid the mortgage are we just taxed on the left over amount?


If this is correct do you know what rate they tax at?

Many thanks again

[MrShed]

Just to clarify, you would of course pay the tax yearly, not as you go, if you know what I mean. With regards that specific question, I'm sorry I'm not a tax person, but someone will be able to help. As I always say with tax questions, Karongo is your man. When you say mortgage payments are £350, you mean an entire repayment mortgage? Or just interest payments? Repayment is not tax deductable.

The rate of tax would depend upon what you are currently earning, hence what level of income tax you are at. Obviously the majority of BTL property owners are fairly high earners, so I would assume you would pay it at a rate of 40%.

[andy_george]

Thank you for all help.

I guess we will need to speak to a IFA as our income is based on us buying and selling other properties.

Thanks again

G

[susan 2]

Andy - You do not have to consult an IFA, just ask your local tax office for help and for their leaflets they publish on all types of tax.Also I would recommend "How to avoid property tax" by Carl Bayley. I have read many tax books but this is the best and clearest I have found and covers Stamp duty and capital gains as well. I borrowed it from the library, but am going to buy it to dip into as needed.
There are so many things you can claim against tax with a buy to let.The interest part of your repayment mortage is one of them. I used to use an accountant, but after a small amount of research found it easy to fill in my tax form myself. If you still have problems ring the tax office, they are very helpful and human! Susan

[Tax Accountant]

You need to decide on the location first, decide your budget, put together your Deposit and find a lender to provide the balance pf funds required. Lenders would normally lend upto 75% of the purchase price and will want to ensure that rent is approxomately a 1/5th more than the monthly loan repayment.

Interest only mortgage may suit you in the short term as it will help you keep your monthly repayments as low as possible but in the long term this will end up costing you a lot more in total interest charge.

Tax is charged yearly on net profit from lettings. This is basically gross rents less loan interest, property insurance, repairs, letting agents fees, furnishings allowance etc. If you borrow in the region of 75%, there may not be much profit left on which to pay tax.

Any profit is divided between all the joint owners. Each owners share of the profit is added to his'her other taxable income in the same tax year and taxed according to how much of the rent profit falls into 22% tax band and how much falls into the 40% tax band.

Generally speaking, you will be into the 40% band if your gross income from earnings, savings interest, share dividends etc is more than £38,000.

If and when you sell, you will be charged Capital Gains Tax on the increase in the value of the property after taking account of various reliefs and allowances.

I hope this helps.

Ramnik