Confused about tax?

We converted our pensions into a couple of buy-to-lets and they work for us. As Richard said, your first port of call should be an accountant. Finding one shouldn’t be a problem – they advertise everywhere – finding the right one is harder. The solicitor that dealt with the paperwork for inheriting the house may be able to point you in that direction. Speaking of the house, you will need to check that there is no outstanding personal tax liability from inheriting it – you don’t state the situation there but no assumptions.

With regard to the letting there is only one real way for a novice and that is through an estate agent. They will take the stress and strain out of it and will also advise you what to retain and what to get rid of, what can be left as is and what will need to be decorated. In our case the monthly income is 800 and 900 and they take about 75 and 85. More important is to take out landlords insurance – this costs 25 and 35 but gives you cover for unpaid rent for 6 months and up to £15k in legal costs to evict. Daunting words, but sensible precautions.

The above figures are per month and approximate and open to negotiation with the agent. One other thing they do is look after maintenance for you. It can be a real pita to get a call saying the boiler isn’t working and then running round trying to get it fixed. The agent will have a group that deals with all maintenance issues from getting a Gas Safety Certificate issued to any remedial works needed. The tenant calls them and they’ll email you requesting authorisation. You’ll need an EPR for the house as ell, but the agent will fill you in on all requirements.

I earn just under the higher tax bracket, and don’t want to push all my income into that bracket.

An accountant will confirm, but your earnings under the tax limit will still be taxed at the lower rate, only the earnings above will be taxed higher and you should be able to offset costs against that.

It’s all a bit daunting now, but if you find yourself with further questions, just come back and ask.

I’m a specialist tax accountant by day.

Rental income is no different than other income in terms of taxation (e.g. salary pension self-employment etc.) and for tax purposes is simply added to other income subject to income tax (as opposed to capital gains tax, dividend tax etc.) and your liability is calculated on the total. Any tax already paid is deducted from the total due and whatever is left over is what you pay.

There are likely to be expenses that you can claim against the rental income to mitigate the taxable amount. e.g. letting agent fees, insurance, repairs replacement and renewals, possibly capital allowances. Expenses for rental purposes can only be used to reduce taxable rental income, and if expenses exceed income, a rental loss is created rather than mitigating other taxable income.

Rental losses also receive special treatment, in that they can only be carried forward and set against future profits from the same rental business (again, no reducing other taxable income).

As an aside, if you had any costs involved with the acquisition of the property (i.e. costs to you and not the estate) keep full details, since these can be used to mitigate capital gains tax on eventual sale. If you have any improvements done to the property, that represents capital expenditure which cannot be claimed against rental income, but can also be used to mitigate capital gains on eventual sale, so again, keep full details.

I think you have had good advice, but do please take on board several things. you will be entering a new line of business as such you will need the right professional support. Remember that most professions have specialists, not all estate agents will do rental management equally well. Not all accountants will deal with small specialist businesses like your new one equally well. Above all it will move from being a store house of memories to a business property. You may well find as Bob found that you no longer feel part of you is still there once others live there and pay for the privilege. Your eyes and mind must be open to those risks, chose wisely and good luck. Several have pointed out that tax come as layers and there are ways to visualise it but each layer of the cake pays only the rate for that layer, zero rate, basic rate, and soon and so forth. When you have accounted for all the money you no longer worry about any more layers. So the 40% layer might only be a few thousands sat on top of the lower rate slices – it can still be a real incentive not to work too hard to earn more money, e.g chasing interest rates that would only be in the band, being left with even 60% of damn all is still damn all and barely worth a phone call, email or letter to obtain.

johnbarry wrote:

Dan what do you do by night.

I don a black cape and mask, and fight crime in the suburbs of Warrington, but shhhh, don’t tell anyone it’s me.

EDIT: Perhaps I should clarify. It’s more of a black coat and hat, and the crime I stop is underage drinking of real ale. I do this by drinking the real ale first so that the under aged can’t get to it.

@Bob, it’s not a name I recall, but I’ll bear it in mind. Give me some clues (age, appearance etc.)

If I do bump into him, I’ll be sure not to yank at his clothes, then.

There is a Bill goes into one of the real ale bars, has hearing aids and is a slight build. Always wears a suit and tie, and I’d peg him at maybe 65. Dunno his surname. but I’ll check next Saturday. You never know….