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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5020
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I need advice please on my tax rate. My situation is: I

Resolved Question:

Hi, I need advice please on my tax rate.My situation is:
I receive 1,350 GBP in rent a month
I pay 400 a month in mortgage a month
I am starting a new job on Monday 17th October paying 32,500 a year.I have been earning 26,000 from January to August of this year.Could you help me work out what tax threshold I am on and how much tax I should put aside each month to pay for the coming year's tax return please?I look forward to hearing from you, Anna
Submitted: 1 year ago.
Category: Tax
Expert: replied 1 year ago.

Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.

Expert: replied 1 year ago.

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.

Many thanks

Customer: replied 1 year ago.
Hi, I believe it's both capital and interest as it's a repayment mortgage. I've attached it for you though - could you double check I'm right?
I have the letting fees to pay which are at 6%. Otherwise, I don't think there is anything else.Thanks so much, Anna
Expert: replied 1 year ago.

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.

Customer: replied 1 year ago.
Hi, thank you for this. Could you give me a bit of a breakdown please as to how you have calculated this? Thanks so much, Anna
Customer: replied 1 year ago.
Also, I am confused, if my annual rental is: 16,200 GBP and my income is 32,500, the total is 48,700 which is the higher tax band? Please can you clarify this for me? Thanks, Anna
Expert: replied 1 year ago.

Thank you for your reply.

I am drafting detailed calculations and will come back to you shortly.

many thanks

Expert: replied 1 year ago.

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.

I hope this is helpful and answers your question.

Customer: replied 1 year ago.
Hi, thank you so much for the breakdown. I am still a little confused, please forgive me!Could you clarify:
Why do you have 2 lines: taxed at 20% and taxed at 40%?
What if I don't spend 1,200 on servicing the proper / maintenance?
Can you clarify what you mean by this: Mortage interest - say 380 Mortage interest relief restricted at 20%again, I am sorry for the questions, but I just need to be really clear on this!Thanks, Anna
Expert: replied 1 year ago.

Thank you for your reply.

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.

Expert: replied 1 year ago.

Hi there

Just checking if you are happy with the responses or need further clarification.

Many thanks

Customer: replied 1 year ago.
Thanks - that is really helpful! Have a good afternoon, Anna
Expert: replied 1 year ago.

Thank you for your good words.

If there are no more issues, I will appreciate if you would kindly rate my service/accept the service I have provided before you leave the site, to ensure I get credited for it by Just Answer. and other Tax Specialists are ready to help you
Expert: replied 1 year ago.

I thank you for accepting my answer.

Best wishes.