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Hello - thank you for your reply, this is my first time using this service and I didn't realise my general question was going to you without me writing a followup. What I am trying to work out is the implication for me. My situation below is straight forward and I wondered if you could do a basic work through for me of the implication.
I am a house husband so have no income other than 1 buy to let property. (my wife pays for our living expenses etc)
I rent a house out that I own with a mortgage. The mortgage is £13 500 per month of which approximately £9000 is the interest element.
I rent my house out for £10 000 per month (after letting agents fees I get £8500 per month).
As you will see under the current system I make a loss as I can offset the £10 000 (or £8500 after letting agent fees) against the £9000 per month interest payment.
But what happens under the new rules (after the transition period). Will HMRC view me has having an income of £102 000 per year (£8500 x 12). if so I will suddenly go from paying no tax to being a high rate tax payer.
Unfortunately Paul, yes. However all is not lost as you will still be able to offset your income with the 9K per month interest element, but only at 20% [ie 21.6K relief].
You would indeed suffer an increase and unless maintenance charges reduce your income below 100K then there is a danger you will begin to loose your personal allowance at a rate of a pound for every 2 pounds over the 100K.
Thank you. So if I understand you correctly I will still be able to knock off my letting agent fees and also my buildings insurance is about £2000 and there will probably be the odd thing (so I should just stay beneath 100k).
So if I have 100k income I can knock 20% off so in effect I am paying tax on £80 000 rather than the £100 000. So then I will be treated like anyone and pay income tax on an income of £80 000, less if I take off my personal allowance.
Also I presume I won't have to pay national insurance on that?
Thanks for explaining.
National Insurance is not levied on rental income, Paul.
It's not quite as simple as that, though. You will be taxed on the net rental ie rental less expenses. Then your tax will be assessed after allowing your personal allowance, available to any EEA citizen, but from that computation can be deducted the mortgage interest element at 20%.
Oh yes you will, Paul; that's what I meant when I said 'net rental ie rental less expenses.'
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