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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Dear sirs, I'd like to buy a property with the buy to let

Resolved Question:

Dear sirs,
I'd like to buy a property with the buy to let scheme. I'm trying to understand how much of the Service cost, land cost and mortgage interest cost I can ask as tax relief.
Are the interest on the buy to let mortgage fully deducible or just a percentage of it?
What about the service cost and land cost?
Would you please be so kind to give me an example?
For example:
1) Leasehold property.
2) Rent income 500 per month --> 6,000£ per year
3) BuyToLet mortgage interest only monthly cost 200£ --> 2,400£ per year
4) Service and land cost 1000£ per year
5) High rate tax band (40%)
How much should I pay in taxes?
Thanks in advance.
Lorenzo
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. What do you mean by "land cost", ground rent? Assuming you do, all the expenses you mention would be deductible in full. You would pay £1,040 in tax on the figures you have given me (£6,000 - £2,400 - 1,000 x 40%). From 2017/18, higher rate tax relief for mortgage interest will start to be withdrawn. You can read about that here. Take a look here for details of the types of expenses you can claim against your rental income. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Hi Tony,thanks for your answer. Could you explain in a nutshell what the consequences of the 2017/18 withdrawn will be on the same example? Thanks in advance.
Expert:  TonyTax replied 1 year ago.
The tax relief for the interest will be given as a deduction from your overall tax liability on all income equal to 20% of the interest. At the moment, the interest is deducted from the rent itself and 40% tax relief is effectrively given because you are 40% taxpayer. In effect, your rental profit will increase for tax purposes as the interest will no longer be allowed as an expense. So, on £2,400 of interest, you will get £480 in tax relief as opposed to £960 now.
Customer: replied 1 year ago.
So just to make some calculation keeping the same data but changing the tax relief according to the 2017/2018:NOW : 6000 - 2400 - 1000 ---> 1040 To pay to the tax man
2017/2018 : 6000 - ? - 1000 ---> ? To pay to the tax manCould you please feel the question mark? Sorry just easier to understand....;-)
Expert:  TonyTax replied 1 year ago.
£1,520 (£5,000 x 40% - (£2,400 x 20%))
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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