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Thank you for your question..
Please advise if the mortgage payment of £400 per month is interest only or both capital and interest.
Do you have any expenses you pay for relting to let property.
Thank you for your reply.
Based on information provided, it appears your total income would be within the threshold of basic rate tax. You should put aside £200 per month to cover tax from rental income.
I hope this is helpful and answers your question.
I am drafting detailed calculations and will come back to you shortly.
Thank you for your patience
On a repayment mortgage, normally in the earlier yearsthe majority of repayment covers interest and little goes on repaying the loan.Although the interest figure is unknown it is likely to be £380 per month.
Attached are my calculations for your perusal.
If you need further clarification, please come back.
Income tax rates are 20%, 40% or 45% depending on taxpayer's taxable income.
When rental income is added to your salary, your total taxable income exceeds the threshold for income tax at basic rate of 20%.
I have assumed you would most probably pay for maintenance of bolier and service it at least once a year, some minor maintenance and that you would also need building insurance etc. I have allowed £1,200 for these costs based on experience dealing with clients who are landlords.
You have a repayment mortgage meaning your monthly repayments include both interest and capital repayment. There are changes to interest relief available on buy to let properties which come into force wef 6 Apr 2017. Although in tax year 2017-18 75% of interest payment would attract tax relief at marginal rate and 25% at basic rate of 20%, in tax year 2020-21, all interest paid would attract tax relief at basic rate at 20%. In my example I have assumed tax relief on interest paid is restricted to 20% for ease of calculations. More information on mortgage interest relief restriction is covered here
I am still of the opinion that setting aside £200 per month should cover tax payable on rental income.
I hope this is helpful.
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Thank you for your good words.
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