The Buddah Posted October 4, 2011 Report Share Posted October 4, 2011 Hello, Im wondering if someone could let me know how the income tax will affect me if i buy a place with a mortgage and rent it out. I may remortgage the property i have to buy another outright. Am i taxed on the whole amount of rent charged and also do i have to pay any extra tax later when i sell the property? Im not self employed and work for a company, how does this affect me> Thank you for any help can provide. Mike. Link to comment Share on other sites More sharing options...
Guest caravanj Posted October 4, 2011 Report Share Posted October 4, 2011 Hello, Im wondering if someone could let me know how the income tax will affect me if i buy a place with a mortgage and rent it out. I may remortgage the property i have to buy another outright. Am i taxed on the whole amount of rent charged and also do i have to pay any extra tax later when i sell the property? Im not self employed and work for a company, how does this affect me> Thank you for any help can provide. Mike. You only pay tax on your net income from the property i.e. rent minus expenditure. Any net income you make from a rental property will be added to your existing income & taxed accordingly. The monetary amount of tax will depend on your tax band. If you sell the property then you'll pay capital gains tax if it's gained in value. Link to comment Share on other sites More sharing options...
Richlist Posted October 4, 2011 Report Share Posted October 4, 2011 I may remortgage the property i have to buy another outright. You will be able to offset the interest payments on the mortgage against income tax liability. Its the purpose of the loan not the security that matters for tax. Am i taxed on the whole amount of rent charged No. You are taxed on the total rent you receive less any expenses (mortgage interest, agents fees, insurances etc etc) and also do i have to pay any extra tax later when i sell the property? Yes.....you are liable for CGT (capital gains tax) on profits when you sell the property. You can offset various allowances ie personal CGT allowance, capital expenditure and other items to reduce the CGT bill. Im not self employed and work for a company, how does this affect me> Profits from your rental property (ie income minus expenses) will be added to your other income...... eg earnings from employment, investment income, other businesses etc and you will be taxed at either 20%, 40% or 50%. There are a few good books available and accountants to help if you need it. Link to comment Share on other sites More sharing options...
The Buddah Posted October 4, 2011 Author Report Share Posted October 4, 2011 Hello caravanj, It makes me think is it worth it?....mmmm I was considering having a mortgage of £75,000 and adding £20,000 of my own cash to buy a small flat to let at £600 p/m. My morgtgage repayment would be £400.00 p/m giving me £200.00p/m profit minus the letting agent management fee £100.00. This would leave me with £100.00. I take it then because i pay 40% tax as an employee i will also pay 40% on the £100.00 leaving me with £60.00 in my pocket. Seems like a lot of commitment and investment for very small rewards. Mike. Link to comment Share on other sites More sharing options...
Richlist Posted October 5, 2011 Report Share Posted October 5, 2011 It makes me think is it worth it?....mmmm There are a lot of people who think BTL is the way to become wealthy. That may have have been true if you were buying property between 2000-2007 when.....mortgages were readily available with sensible interest rates/ charges and before the economic downturn. The truth is there are far fewer people buying residential property today who can make a reasonable return on their investment and some purchases are a sure fire way of loosing money. Seems like a lot of commitment and investment for very small rewards. In fact, it can be even worse than that. Unless you can buy ......below market value &/or identify/ realise development potential and with little or no opportunity for capital appreciation then, the chances of you making money in the short to medium term are slim. Whats the point of achieving a net 7% return (or less) with all the risks associated with letting when you can get a risk free 5% elsewhere? Some people choose to ignore the risks, some are blind to the low returns, others can't count and think they are making more profit than they really are. Its your money.......good luck. Link to comment Share on other sites More sharing options...
Guest caravanj Posted October 5, 2011 Report Share Posted October 5, 2011 Hello caravanj, It makes me think is it worth it?....mmmm I was considering having a mortgage of £75,000 and adding £20,000 of my own cash to buy a small flat to let at £600 p/m. My morgtgage repayment would be £400.00 p/m giving me £200.00p/m profit minus the letting agent management fee £100.00. This would leave me with £100.00. I take it then because i pay 40% tax as an employee i will also pay 40% on the £100.00 leaving me with £60.00 in my pocket. Seems like a lot of commitment and investment for very small rewards. Mike. Hi Mike, from your figures it hardly seems worthwhile but Richlist ( who I reckon is a secret millionaire ) gives really good advice on all the pros & cons of BTL, especially all the easily forgotten costs such as the annual gas check, insurance etc. Yes you will pay 40% tax on your rental income. I know that in the boom years it was commonplace to buy BTLs & just break even with the rent v mortgage because the investment centred around the rent paying the mortgage & the property value shooting up in a few months but those days have gone for the present time. Link to comment Share on other sites More sharing options...
Richlist Posted October 5, 2011 Report Share Posted October 5, 2011 Whats the point of achieving a net 7% return (or less) with all the risks associated with letting when you can get a risk free 5% elsewhere? .....and just to further qualify my point......RPI is currently 5.2% SO: * a 20% tax payer needs to achieve 6.5% pre tax return to JUST keep pace with inflation * a 40% taxpayer needs 8.66% I like to bet there are a lot of new landlords NOT achieving anywhere near that level of return. Coupled with flat/ falling capital values.....people need to wake up and smell the coffee. The old argument used by many.....'I'm in it for the long haul' ......just sees their equity dwindling away over the next few years whilst getting less than RPI/ losses on rental income. Not a lot going for BTL in the current climate. Before anyone accuses me of hypocracy.....most of my rentals were bought years ago at a small fraction of todays prices with smaller deposits and smaller mortgages at 0.5% above base. I'm achieving massive returns on investment ( and paying lots of tax on the profits). Something thats virtually impossible for a new entrant to replicate. Link to comment Share on other sites More sharing options...
Melboy Posted October 5, 2011 Report Share Posted October 5, 2011 Before anyone accuses me of hypocracy.....most of my rentals were bought years ago at a small fraction of todays prices with smaller deposits and smaller mortgages at 0.5% above base. I'm achieving massive returns on investment ( and paying lots of tax on the profits). Something thats virtually impossible for a new entrant to replicate. Yes, me too. I tend to keep out of the BTL mortgage debate because I cannot really see how people can make it work in today's financial climate and relatively high house prices and the cost of the sundry expenses of obtaining the actual property and the BTL mortgage. This doesn't mean to say it wasn't difficult pre 1997 because it was and nobody, but nobody saw the huge rise in house prices coming especially after the economic down-turn in house prices etc. of the early 1990's. Without opening the "Grand House Price Debate" I firmly believe that house prices still have a further fall ahead of the current pricing levels......not forgetting of course I buy houses for a living......and at the moment with those immortal words..... I'm out! Mel. Link to comment Share on other sites More sharing options...
The Buddah Posted October 6, 2011 Author Report Share Posted October 6, 2011 Thank you all for your replies, Im not really looking for a quick buck then run away, What im thinking of longer term investment to give me an income when i retire. The pension doesn't seem very promising. All i wanted to do was buy to let, let the rent pay the mortgage then (which will be a repayment) and ad extra payments to get rid of the mortgage with the intent of being able to help myself with the bills in old age. It's a bloody joke when you can't make provisions to help yourself as you get older, Paying 40% on my wages should be enough. No wonder the country is in such a mess when the government knocks the wind out of people who try to help themselves. Oh well, rant over, i have some thinking to do now. Once again thank you all for helpful advice. Mike. Link to comment Share on other sites More sharing options...
Guest caravanj Posted October 6, 2011 Report Share Posted October 6, 2011 Thank you all for your replies, Im not really looking for a quick buck then run away, What im thinking of longer term investment to give me an income when i retire. The pension doesn't seem very promising. All i wanted to do was buy to let, let the rent pay the mortgage then (which will be a repayment) and ad extra payments to get rid of the mortgage with the intent of being able to help myself with the bills in old age. It's a bloody joke when you can't make provisions to help yourself as you get older, Paying 40% on my wages should be enough. No wonder the country is in such a mess when the government knocks the wind out of people who try to help themselves. Oh well, rant over, i have some thinking to do now. Once again thank you all for helpful advice. Mike. Hmmm, saving for your retirement isn't necessarily a good. I've got a good private pension & property investments but I will pay income tax & full council tax till the day I die. My neighbour who's only got a basic State Pension doesn't pay any income tax or council tax & gets pension credits. He also had a £6,000 central heating system free from Warmfront & has been offered £12,000 of solar heating free!!!!! All things that I would have to pay for. Link to comment Share on other sites More sharing options...
Richlist Posted October 7, 2011 Report Share Posted October 7, 2011 Listen guys.......the hardest part is the first million.......after that things do get a bit easier. Remember, when they asked Richard Branson for a tip on how to make a million pounds his answer was.......making a million pounds is easy, first you become a billionaire and then you buy an airline. Link to comment Share on other sites More sharing options...
Melboy Posted October 7, 2011 Report Share Posted October 7, 2011 Listen guys.......the hardest part is the first million.......after that things do get a bit easier. It's not often I disagree with you Richlist but the last part of your sentence above is not quite true. Mel. Link to comment Share on other sites More sharing options...
Simon Dewsberry Posted October 8, 2011 Report Share Posted October 8, 2011 Not a lot going for BTL in the current climate. hmmm .....the deals are still out there, tenant demand is higher than ever, rents are increasing all the time, there are more "motivated" sellers now than ever before.... in the last 12 mths: prop 1 4 bed purchased @ £170k spent £35k just sold for £306k prop 2 3 bed conv to a 4 bed purchased @ £75k spent £25k just sold for £185k prop 3 2 bed purchased @ £85k (late aug) spent £25k on market in 2 weeks for £160k okay so i have chosen not to let them - this is because i have a large portfolio & do not wish to increase it any further but had i let then rents would be: p1 £1400 - roi - 8.1% p2 £1200 - roi - 14.4% p3 £850 - roi - 9.2% there is life left in the old dog yet !!! Link to comment Share on other sites More sharing options...
Richlist Posted October 8, 2011 Report Share Posted October 8, 2011 .....the deals are still out there, there are more "motivated" sellers now than ever before.... Totally agree. tenant demand is higher than ever, rents are increasing all the time, In some areas yes, but I think its wrong to generalise as demand & rent increases differ widely geographically. okay so i have chosen not to let them - this is because i have a large portfolio & do not wish to increase it any further but had i let then rents would be: p1 £1400 - roi - 8.1% p2 £1200 - roi - 14.4% p3 £850 - roi - 9.2% there is life left in the old dog yet !!! You cleary know what you are doing, probably spend a large part of your time doing it, are experienced, knowledgable, know your market, the costs associated with refurbs/ renovations, have contacts in the building trade etc etc. Internet forums are often frequented by novices/ new entrants who see no risk, think its easy and that anyone can do it. We all know that is NOT the case...... and so my promoting caution before they jump in with both feet is best I can offer them. Link to comment Share on other sites More sharing options...
Simon Dewsberry Posted October 8, 2011 Report Share Posted October 8, 2011 Appreciate the sentiment RL but it is not rocket science to scribble a few numbers on the back of an envelope then follow thru ! The challenge is in identifying suitable properties/locations to fit the equation ...and for most suitable/flexible financing. As has been stated umpteen times before: there is no sustitute for due diligence when entering any investment - this said for those prepared to do the time - there is plenty of opportunity to see good roi. Rental demand is on the increase nationally & will be for the forseeable future due to a lack of housing and the fall behind of building new stock, also fuelled by FTB entering the market far later, immigration and the instabilty of employment. There is no area i know of where rents are falling except maybe social housing where rents will be driven down by HB cuts - not a market i work in or ever will for many reasons. Altho rents and demand DO vary geographically i am struggling to see any area where the trend is negative ? Link to comment Share on other sites More sharing options...
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