Buy to let - tax question?

S

Solded

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Hi all!

I want to purchase a property and let it out to someone, become a landlord and put the income from them to the mortgage repayments.

How does income tax work on this? I understand income from property is taxable, but it will go straight back into the house in the form of the mortgage payments. Will I still pay tax on it? I've looked at this income tax website which has showed me I will pay tax (lots of!) on income I can't spend.

Any advice is much appreciated :)
 
Tax is payable on profits

So after expenses, one of which is the mortgage interest, you calculate what profit you have made

Then you pay tax on that

If your mortgage interest is high then you have more expenses to deduct
 
A simple example might help.

Rental income 12,000

Less expenses
Management fees 500
Auctioneers fees 500
Insurance 250
Loan interest 3750

Profit 7,000

Less Capital allowances on fixtures and fittings 500

Taxable 6,500

Tax approx 3,250.
 
A fairly obvious point that a lot of people seem to miss is that principal repayments on a mortgage are not tax deductible. So it is quite common for a property investment to be profitable and cash-flow negative at the same time.
 
Not also that interest relief on residential lettings is restricted to 85% in 2018, 90% in 2019 and 95% in 2020 i.e part of interest expense not deductible for tax purposes. LPT also not deductible
 
Hi Solded, do a search on the site, this issue is well covered, I think on this site posters are either pro rental or anti rental, for me the risks, the tax and the anti landlord establishment would make me think very hard.
 
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