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I have a question regarding the income tax private landlords

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I have a question regarding the income tax private landlords have to pay and whether paying a management or letting fee is deductible.
Submitted: 9 months ago.
Category: Tax
Expert:  TaxRobin replied 9 months ago.

Hello

Letting agent fees and management fees are deductible.

Common types of expenses you can deduct if you pay for them yourself are:

  • general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
  • water rates, council tax, gas and electricity
  • insurance - landlords’ policies for buildings, contents and public liability
  • interest on a mortgage to buy the property
  • costs of services, including the wages of gardeners and cleaners
  • legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  • accountant’s fees
  • rents (if you’re sub-letting), ground rents and service charges
  • direct costs such as phone calls, stationery and advertising for new tenants
  • vehicle running costs (only the proportion used for your rental business)
Customer: replied 9 months ago.
OK this is a pretty good list. But if I am a private landlord does it still count as a business even if i don't pay any management or letting fees and manage the property all myself?
So ground rent / service charge and building insurance can all be deducted before income tax is paid?
Expert:  TaxRobin replied 9 months ago.

Those expenses are used to reduce the profit from the letting an you just pay tax on the profit.

If being a landlord is your main job then you have to pay Class 2 National Insurance if your profits are over £5,965 a year and what you do counts as running a business but you also need to be doing the following too:

  • you rent out more than one property
  • you’re buying new properties to rent out

If not then it is not a business.

You don’t pay National Insurance if you’re not running a business - even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.

Customer: replied 9 months ago.
i think i might be Class 4 rather than Class 2. My situation is that i might be looking to buy a property to rent so need to know the costs. I also have a boat that I rent for a small amount.
If my combined income from a flat and boat rent is £23,000 a year then I have to pay income tax on this whole ammount, minus expenses (ground rent, service charge, insurance, letting or managment fees)
rental income - expenses = profit that is taxable
Is this correct?
Would I also in this scenario have to pay 9% National Insurance!?
It may help to flesh out a real example
Expert:  TaxRobin replied 9 months ago.

Yes, that is correct.

If all the following apply:

  • being a landlord is your main job
  • you rent out more than one property
  • you’re buying new properties to rent out (adding to your portfolio of properties)

You have to pay Class 2 National Insurance if your profits are over £5,965 a year and what you do counts as running a business, eg if all the above applies.

If your profits are under £5,965, you can make voluntary Class 2 National Insurance payments, eg to make sure you get the full State Pension.

Customer: replied 9 months ago.
I don.t understand the third clause 'if you're buying new properties' - what if you are no buying anything else but have already bought? Are you sure I wouldn't be Class 4 not 2?In my scenario The combined rent from flat and boat properties would be £23,000 a year.
minus for example £700 service charge and ground rent and £2,500 management fee. That's a deduction of £3,200. 23,000 - 3,200 is rental profit of 19,800.
In this scenario I would pay income tax on the 19,800 PLUS any other income?let's say I had other income of £14,000 to add to the £19,800. This income was not from rent.Then I would pay income tax on 33,800? (rent income minus expenses + other income not from rent)
£33,800 after the £11,000 tax free personal allowance is £22,800
£22,800 would then all be 20% tax rate as under £43,000 (or £32,000 after personal allowance)
that is tax of £4,560
leaving total income after tax as £29,240?please advise if this is correct.
I also don't know at which point to deduct any National Insurance contributions? When do I deduct this? From the rental profit or do they count as tax free expenses?Finally the three clauses that make being a private landlord a business seem a bit vague (not your fault I know!)
aside from the 'you ARE buying new properties' bit what counts as landlord being your main job? If I work a full time job as a teacher at the same time does teaching become my main job? What if I am a part time teacher? Is it simply calculated by how much you earn relative to your rental income/profits? For example if (continuing the above example) I had
a rental income before expenses of £23,000 - but also had income of £27,000 teaching. How would this effect me and if I am counted as a landlord 'running a business'many thanks
F
Expert:  TaxRobin replied 9 months ago.

As far as class I only listed the profit amount for class 2, Class 4 if your profits are £8,060 or more a year.

If you have numerous properties then that is fine, even if bought prior to.

Landlord being your main work would look at where your (if any) other income derives from, how much time you are spending on letting vs other work, pension in one or the other, and if you are doing all the work yourself.

In your example with teaching, how much time are you required to spend on each? The one that requires more of your time and you receive more income (profits after expenses) would be your main job.

I trust this has been helpful.

If you rate in a positive way (look for the STARS or SMILEY FACES) I am credited with responding. It adds nothing to your costs but it assists me.

Customer: replied 9 months ago.
I'm afraid you haven't answered my questions and that's a bit unclear.
With class 4 (if indeed that's what I would be) would the first £8,060 profit not require a contribution or would the whole profit amount be subject to the 9%What if my landlord duties took very little time compared to my teaching but earned me around 10k more a year. Is it my main job?So 'already owning properties' is fine as long as you don't start buyING more? In that case would I not count as this clause wouldnt apply?Please can you also advise on my above calculationsDont worry, I'm big on smiley faces if I get my answers
F
Expert:  TaxRobin replied 9 months ago.

The profit is subject to the NI not all gross (before expenses).

Teaching is your main job in my interpretation in both your examples.

The point is in having more than one not really when you acquired. Business would mean you have more than one property you let.

Customer: replied 9 months ago.
my tax calculations? please advise!assuming rental profit is £19,800 and i fit all three criteria for it to count as a business I would be in Class 4 for NI payments as my profits would exceed £8,060. Is this correct?
If this is correct please advise how much those payments would be. Would I pay 9% on the whole £19,800 (£1782) or only on the profit over £8060? (that amount is 11,740 so 9% payments would be £1,056)
please advise which is correct.And to clarify about the 3 clauses. If despite my decent profits from rent my main job is something else - then I don't have to make any contributions at all? How does it work?
Expert:  TaxRobin replied 9 months ago.

Correct

You pay Class 4 rate of 9% on profits between £8,060 and £43,000 then you would pay a rate of 2% on profits over £43,000.

If your taxable profits are above the lower Class 4 profit limit (£8,060 for 2016-17 and 2015-16) you will pay Class 4 contributions of 9% on profits over this limit. You pay Class 4 National Insurance together with your income tax – usually due by 31 January and 31 July each tax year. If profits are high (over £43,000 in 2016-17; £42,385 in 2015-16) then the rate of Class 4 National Insurance falls to 2% on profits over this higher limit.

You don’t pay National Insurance if you’re not running a business - even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements. You are not required to.

Customer: replied 9 months ago.
OK we're getting thereSo can you calculate how much income tax i'd pay ifScenario A
rental income of 28,000, rental profit after expenses of, 25,000
other non rent income of 5,000
and NI payments WERE required.Scenario B
rental income of 28,000, rental profit after expenses of, 25,000
other non rent income of 5,000
and NI payments were NOT required.Scenario C
rental income of 35,200, rental profit after expenses of 33,000
no other income
and NI payments were required.Scenario D
rental income of 35,200, rental profit after expenses of 33,000
other non rent income of 20,000
and NI payments were requiredHow much total income tax and NI would I need to pay in each of these scenarios if the year was 2017thank you
Customer: replied 9 months ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Customer: replied 9 months ago.
I'd like a final answer to the above questions plusAnd finally regarding these three clauses-being a landlord is your main job
-you rent out more than one property
-you’re buying new properties to rent out (adding to your portfolio of properties)Do I have to pay NI contributions in the following scenarios?Scenario W
Landlord is my main job, I rent out two properties but I am not buying any other properties.Scenario X
Landlord is not my main job, I rent out two properties and not buying any other properties.Scenario Y
Landlord is my main job but I only rent out 1 property andScenario Z
Landlord is my main job, I rent out 3 properties and am actively buying a fourthThank you. In the teaching examples earlier who is it that actually decides or approves the breakdown of what constitutes a main job? Is it the HMRC or a tax adviser?Many thanks for your help
These are my last questions!
F
Expert:  TaxRobin replied 9 months ago.

You came back after I had left and your rating was received. Your original question was about the allowed deduction for letting fee and management. I was not requested to calculate your tax.

Expert:  TaxRobin replied 9 months ago.

I responded to all your additional follow ups and added questions that were past the original .

Customer: replied 9 months ago.
You have failed to answer my example questions
Also i asked another consultant the same question and they assured me it was almost certain I wouldn't need to pay class 2 / 4 NI.
It has also taken several follow ups to get you to actually give me an answer with any detail at all. I can find all the links and pages for myself on Gov.uk - I need help with the calculations and some nous on how certain scenarios get classified by HMRC. That's what I need. After that I will happily rate you!
Expert:  TaxRobin replied 9 months ago.

I advised you would not pay NI based on your activity.

Calculating your tax is a different question and should be posted as a new and separate question.

Customer: replied 9 months ago.
No NI for W X Y and Z above? It would be nice if you actually refrerred to my question. The data and examples I have asked about. You are giving vague answers
Expert:  TaxRobin replied 9 months ago.

I'd like a final answer to the above questions plus

And finally regarding these three clauses

-being a landlord is your main job
-you rent out more than one property
-you’re buying new properties to rent out (adding to your portfolio of properties)

Do I have to pay NI contributions in the following scenarios?

Scenario W
Landlord is my main job, I rent out two properties but I am not buying any other properties.

Scenario X
Landlord is not my main job, I rent out two properties and not buying any other properties.
NO
Scenario Y
Landlord is my main job but I only rent out 1 property and
NO
Scenario Z
Landlord is my main job, I rent out 3 properties and am actively buying a fourth

YES

Customer: replied 9 months ago.
you missed out W.
Expert:  TaxRobin replied 9 months ago.

Scenario W
Landlord is my main job, I rent out two properties but I am not buying any other properties.

NO

Customer: replied 9 months ago.
Thank you
OK my tax calculations scenarios A B C and D sill haven't been answered and that was almost 24 hours ago!
Expert:  TaxRobin replied 9 months ago.

Tax calculations scenarios A B C and D would be a new question.

That is totally separate form your original post about can you deduct.

Customer: replied 9 months ago.
my original post suggests i want to know how much income tax i'd need to pay. That is still the case 24 hours later and seeing as you were not specific I used those examples to help you to guide my understanding. If you refuse to answer them that is your choice.
Expert:  Nicola-mod replied 9 months ago.
Hello,
It seems the professional has left this conversation. This happens occasionally, and it's usually because the professional thinks that someone else might be a better match for your question. I've been working hard to find a new professional to assist you with your question, but sometimes finding the right professional can take a little longer than expected.
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Thank you!
Nicola
Customer: replied 9 months ago.
I.d like answers to examples A, B, C and D above yes
Expert:  Nicola-mod replied 9 months ago.
Hello,
We will continue to look for a Professional to assist you.
Thank you for your patience,
Nicola
Expert:  Nicola-mod replied 9 months ago.
Hello,
Please understand it is rare for us not to be able to find the right Professional to assist our customers. We can close this question and return your good faith deposit to the original funding source on request.
Please let me know how you wish to proceed and again I apologize for any inconvenience this may have caused.
I hope you will give JustAnswer a try again in the future,
Nicola
Expert:  bigduckontax replied 9 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

You will be liable for Income Tax (IT) on the following income:

A. 25K + 5K - 11K [Personal allowance] = 19K @ 20% is 3.8K tax payable.

B. Ditto.

C. 33K - 11K = 22K @ 20% is 4.4K tax payable.

D. 53K - 11K = 42K: 32K @ 20% = 6.4K and 10K @ 40% = 4K: total 10.4K due.

I hope that this gives you the information you require regarding IT.

Customer: replied 8 months ago.
Hi Keith, thank you for this great response.
However I did also ask about how much NI (National Insurance) I would need to pay for each scenario.
If you could please assist me on that with these 4 scenarios then we're done
many thanks
Expert:  bigduckontax replied 8 months ago.

Letting property does not attract National Insurance contributions.

Please be so kind as to rate me before you leave the Just Answer site.

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Expert:  bigduckontax replied 8 months ago.

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