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Mick in Bangkok

Tax on property letting when on the cut

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Hi,

Not sure if this is the correct place to ask but as some of you may be letting out your properties to live afloat can anyone give me some basic ball point figures to assist me with my budget as follows.

If I own property outright and rent out for an income what percentage tax would I be liable for and would this tax be taken from the total rental income or after maintenance expenses. Are there other considerations other than tax and maintenance and time the property may remain empty that I should consider.

What percentage commission would I likely be charged by a letting agency and would this fee also be tax deductible?

Any guidance would be appreciated.

Cheers Mick

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9 minutes ago, Mick in Bangkok said:

Hi,

Not sure if this is the correct place to ask but as some of you may be letting out your properties to live afloat can anyone give me some basic ball point figures to assist me with my budget as follows.

If I own property outright and rent out for an income what percentage tax would I be liable for and would this tax be taken from the total rental income or after maintenance expenses. Are there other considerations other than tax and maintenance and time the property may remain empty that I should consider.

What percentage commission would I likely be charged by a letting agency and would this fee also be tax deductible?

Any guidance would be appreciated.

Cheers Mick

Lots of info here:

https://www.gov.uk/renting-out-a-property/paying-tax

Tim

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Hi,

You will pay income tax on the income after allowable expenses.  The attached file is the Inland Revenue guidance detailing what you can claim.

Basically you can claim the costs of maintaining the property, but not for improvements. 

Re fees my agent charges 10% which I think is fairly typical. You can claim this against tax. 

 

sa105-notes_2016.pdf

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Hi Tim and thank you for directing me to this web page, it would appear that I would be liable for Class 4 Self-employed National Insurance rates at 9%.

The example given notes that with a turnover of £40,000, and a claim of £10,000 in allowable expenses the remaining £30,000 - known as taxable profit would be taxed (Taxable profit being 9% on profits between £8,164 and £45,000) so tax on this example would be GBP30,000/9% = GBP2,700 per annum pleas accounting and agency fees etc.

Does this look correct?

Cheers Mick

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Ok so ball park figures;

Rental income minus property maintenance = taxable income at 9%;

Agency fee at 10% of rental income;

So if I were to allow agency and tax costs of 19% combined then I would need only consider maintenance and the rest would be my living budget, or thereabouts.

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No, you don’t have to pay national insurance unless you are running a business eg with multiple buy to let properties. If you just rent out your own home, that is not a business. You will have to pay income tax (on income after deducting allowable expenses) and fill out an annual tax return.

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8 minutes ago, nicknorman said:

No, you don’t have to pay national insurance unless you are running a business eg with multiple buy to let properties. If you just rent out your own home, that is not a business. You will have to pay income tax (on income after deducting allowable expenses) and fill out an annual tax return.

A good property agent (yes, they typically take 10% of the gross rent but they're worth it because they do th ejobs that you may not wish to do) will make it easier to fill in your tax return because at the end of each financial year they will send you a statement of gross income, fees deducted and repairs/ maintenance costs (ours even attaches the invoices from each tradesman) for each of your properties.

3 minutes ago, Tuscan said:

Need to add in  cost of insurance, and gas safety certificate again deductible. 

Yes, good point - some insurance companies offer specific landlord policies.

I was counting the gas safety certificate as part of the maintenance expenses.

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20 minutes ago, nicknorman said:

No, you don’t have to pay national insurance unless you are running a business eg with multiple buy to let properties. If you just rent out your own home, that is not a business. You will have to pay income tax (on income after deducting allowable expenses) and fill out an annual tax return.

And they are changing that to 6 monthly and online.

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36 minutes ago, rusty69 said:

Don't forget to have your agent carry out a legionella risk assessment too. 

For most properties it’s trivially easy to do that yourself. Otherwise it’s just a cash cow for someone else.

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Just now, nicknorman said:

For most properties it’s trivially easy to do that yourself. Otherwise it’s just a cash cow for someone else.

Agreed, but often overlooked by agents as is checking the right to rent, protecting deposits and electrical installation checks. 

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2 hours ago, Mick in Bangkok said:

Hi,

Not sure if this is the correct place to ask but as some of you may be letting out your properties to live afloat can anyone give me some basic ball point figures to assist me with my budget as follows.

If I own property outright and rent out for an income what percentage tax would I be liable for and would this tax be taken from the total rental income or after maintenance expenses. Are there other considerations other than tax and maintenance and time the property may remain empty that I should consider.

What percentage commission would I likely be charged by a letting agency and would this fee also be tax deductible?

Any guidance would be appreciated.

Cheers Mick

A very easy one to answer. If you don't already use one then simply contact an accountant. I have used accountants for all manner of things every year for a long time wether its been business, self employment, doing my VAT or advice re renting property out and without exeption it has saved me more money than their costs and very well worth it. If I need anything other than basic electrics doing on the boat I get a leccy bod, if I need the engine mendersising ( hopefuly not ) I get a mechanic same rule applies realy.

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2 hours ago, Mick in Bangkok said:

Hi Tim and thank you for directing me to this web page, it would appear that I would be liable for Class 4 Self-employed National Insurance rates at 9%.

The example given notes that with a turnover of £40,000, and a claim of £10,000 in allowable expenses the remaining £30,000 - known as taxable profit would be taxed (Taxable profit being 9% on profits between £8,164 and £45,000) so tax on this example would be GBP30,000/9% = GBP2,700 per annum pleas accounting and agency fees etc.

Does this look correct?

Cheers Mick

I am confused by this 9%, its a source of income so I have always assumed its taxed at the standard 20%, or 40% if you are a high earner. HMRC tightens things up every year so so expenses, like having to keep buying new fridges and washing machines, are not tax deductible.

.............Dave

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44 minutes ago, mrsmelly said:

A very easy one to answer. If you don't already use one then simply contact an accountant. I have used accountants for all manner of things every year for a long time wether its been business, self employment, doing my VAT or advice re renting property out and without exeption it has saved me more money than their costs and very well worth it. If I need anything other than basic electrics doing on the boat I get a leccy bod, if I need the engine mendersising ( hopefuly not ) I get a mechanic same rule applies realy.

Yes well noted, I am simply seeking ball park figures at the moment to work out my budget and will be in UK early next year to seek proper advice

  • Happy 1

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If you plan to let your house officially with a proper lease etc (and it would be daft not to) you will have to make sure your house  complies with all sorts of mandatory building regulations - the equivalent of a boat BSC - and not cheap or reclaimable as an expense against tax - then coupled with landlords insurance (that have all sorts of restrictive clauses) - and whether it is let out as fully furnished or not.

Watch out for the latest tax laws that could make 'buy-to-let' unprofitable after paying interest on a loan.

If you own your place outright without having to pay loan interest, then you should make a profit after expenses - but do not lose sight of a looming problem where the taxman man will class your boat as your home (which would be hard to deny) that hat unwittingly puts your house in the 2nd home category and being let as a commercial operation will hit you with a capital gains tax bill when you sell it.

Consider whether your building is a house or home ? If the latter, then even with a good tenant, you will probably want to redecorate throughout when you move back in - and that's not cheap - or worse a rogue tenant who does not pay the rent - or refuses to leave - and if forced out by court order - a tenant who trashes the place.

Don't think I am trying to put you off - but being a landlord is not for the faint hearted.

 

 

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18 minutes ago, Horace42 said:

 

If you own your place outright without having to pay loan interest, then you should make a profit after expenses.

 

 

We reckon on a net profit of about 5% p.a. based on the purchase prices of our rental properties, so it's not huge. But then of course we use an estate agent to manage the property, thus reducing our profit but enhancing our peace of mind.

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5 minutes ago, Athy said:

But then of course we use an estate agent to manage the property, thus reducing our profit but enhancing our peace of mind

I used to do that, before realising the agent knew less about it than I did. Finding a good agent is as important as finding a good tenant. 

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Just now, rusty69 said:

I used to do that, before realising the agent knew less about it than I did. Finding a good agent is as important as finding a good tenant. 

Yes, and the former should be able to find the latter. We use a long-established estate agent in the town (Thetford), chose them more or less by accident (because we bought our first rental property from them) and they have almost always been exemplary in finding good tenants and in efficient management.

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actually 5% does not sound to bad, I am gaining 6% gross and around 3.6-4% net in Bangkok after tax etc.

11 minutes ago, Athy said:

We reckon on a net profit of about 5% p.a. based on the purchase prices of our rental properties, so it's not huge. But then of course we use an estate agent to manage the property, thus reducing our profit but enhancing our peace of mind.

actually 5% does not sound to bad, I am gaining 6% gross and around 3.6-4% net in Bangkok after tax etc.

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If you are temporarily renting out a house you have previously lived in, e.g. while working away, then capital gains tax is not payable for a certain period. But if you have bought the house specifically to rent out then all the gain will be subject to  CGT when you sell.

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15 minutes ago, Athy said:

Yes, and the former should be able to find the latter. We use a long-established estate agent in the town (Thetford), chose them more or less by accident (because we bought our first rental property from them) and they have almost always been exemplary in finding good tenants and in efficient management.

True, but you have to find the former and determine whether they know what they are on about. This involves knowing something about it yourself. 

Picked mine by accident too, they were terrible. 

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2 minutes ago, Athy said:

We reckon on a net profit of about 5% p.a. based on the purchase prices of our rental properties, so it's not huge. But then of course we use an estate agent to manage the property, thus reducing our profit but enhancing our peace of mind.

Glad to hear it. Peace of mind is very important. But just a detail, is 5% after paying loan interest, in which case 5% is very good indeed. In fact quite good even without a loan to pay off compared to returns produced by my pension fund.

 

 

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