Updating post from Reddit.
Can someone guesstimate this for me please; PAYE earning £19,500 2 properties let out. Total rent £2300/month Mortgage interest for year £19,000 Maintenance costs £9000
Approximate tax due? My accountant says £2400, which is a complete fuck up, surely? 😱
With only two properties - make a simple excel spreadsheet showing money in ( rent) and money out ( essential repairs, gas certificates etc) Confirm using direct gov website that you are claiming for everything you are allowed to. Do your own tax return online, it's easy. If you aren't sure about anything you can phone or message on chat HMRC and they will help you.Sack your accountant 😂
Does this include a 50% "payment on account" for the next year?
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£9000 maintenance costs? What are you maintaining for £9k?
two houses that needed extensive maintenance work.
£18,600 rental income after allowed expences,
£3720 tax at 20%
£3800 tax credit on mortgage intrest
sounds like a fuckup unless you have other earnings / capital gains pushing you 6K in to the 40% bracket
Unless that’s total mortgage payments instead of just mortgage interest. Plus it looks like they might be including their PAYE income in the tax calculation
how do you think the PAYE income may of been used? AFAIK it would be used for total income / tax bands and PAYE would take up personal allowance in this instance too? - its been a while since i was PAYE and self employed.
By the PAYE income used I meant that the quote for “tax due” may include their total tax burden for the year.
Total income is 47100 less 9000 cost, would mean a total tax bill of 5100.
Now, if we assume the total mortgage cost is 19000 and has an interest element of 13500 that would leave OP total tax liability at 2400 for the year. Of which roughly 1400 is through PAYE and 1000 would be owed from the rental property income
the mortgage payments do seem high vs rent if its interest only
Assuming standard tax code and nothing due from last year. Then yes that seems off
Check - is it interest for the year and not any repayments of capital.
Is there some kind of payment on account going in for next year - or tax due from last year.
On the face of it you have a loss on the rentals so nothing due. And just paye tax on your income. All in lower rate tax bands so not getting hit with 40% on the rental income and the 20% back on interest
But ask accountant for their calculation
To clarify; That is the mortgage INTEREST. I have no other income. All maintenance is allowable expenses. So am I correct in thinking I should remain in 20% tax bracket, so effectively all my interest is deductible (altho obviously that’s not how it’s calculated, that is effectively the result)?
No. Only 20% of your mortgage interest can be claimed as a credit at the end of your tax year against whatever tax amount is due. Its a ’credit’ not an allowable expense (to stop claims for refunds).
So if you owe tax when your return is complete, you can apply a deduction of 20% of the total mortgage interest paid that year. If you break even with the tax man, or make a loss so no tax due, then you cant then claim the mortgage interest credit at all nor can you run it over into next years accounts.
There is no payment in advance for next year due. This was their “calculation” for the year, not any extras due
£9k maintenance? In 1 year? What have you been doing?
The rough basic maths are (and PAYE is irrelevant unless theres tax owing or a credit in there) you have a personal allowance of £12k
Income 19.5 + 27.6 Total £47k
Less maintenance (????) £9k
Tax due on £38k
First 12k at 0, then 26k at basic rate 20% Total tax due £5200
Less 20% ‘tax credit’ for your mort interest £3.8k
Total tax due £1,400.
Im questioning your ‘maintenance’ as a/ its high in a single year and b/ if this is on a cash basis not a traditional accounting basis its most likely some of your ‘maintenance’ crossed tax years. What was it for and when?
(I also note youve not included insurances, agency fees general overheads etc or dod that get thrown in the ‘maintenance’ pot?)
Insurances etc got thrown in my maintenance pot. As did general overheads. No agency fees. One property got replacement windows, as previous ones were past repairing. And one property has a 30sq.m balcony that needed entirely replacing. It was an expensive year, hence her calculation was so unbelievable 😢
OP, is your PAYE income already taxed ? If youve already paid tax on it (£19.5 less 12k pa = £1500 tax paid?) Then your total tax due for the year (going back to my 1st post) is 5200 -1500 = 3700
Mortgage interest tax credit cant be applied to a ‘loss’ so there is a ceiling when youre working close to break even as to how much interest tax credit you can use,
Things that can vary. If both properties are mortgaged part of a mortgage isnt fully allowable. (Did you raise equity off 1?)
Something in your ‘maintenance’ for eg. full replacement balcony may be questionable as an ‘improvement’ as are your windows. Theres repairs and theres improvements. Improvements are not tax deductable.
You need to go back to the accountant and get the breakdown. Hes clearly disallowed something …….and he may be right.
But in short, youve got the hang of my back of a fag packet calculations. Total annual income (from wherever, doesnt matter) less allowable expenses (these need checking carefully) will give you annual tax due. Personal tax allowance, then basic rate banding leaves amount owing. At this point the possible mortgage interest tax credit is applied.
My PAYE is already taxed. Both properties are mortgaged, but I did not raise from one to purchase the other, both are at roughly 75% ltv (as purchased recently) Full balcony is deductible, as it is flat roof of flat below, and I have communication from managing agent sayings it’s my responsibility to repair and it was leaking thru into flat below. Was not repairable so full replacement was definitely necessary repair. Windows were double glazed already just awful condition, and replaced with same, so should also be deductible. Either way, if it was that then I should’ve been asked for details of my claimed expenses. All in all I’m thinking of consulting a different accountant 😬
Its bonkers going to another accountant if you havent bothered asking this one for a full breakdown of what, where how much etc.
Just get the full copy of the return off them and youll see (or ask them to explain) how theyve calculated it, whats been allowed and what hasnt You need to understand what theyve done as they havent just made this up and they are in the business of getting the best position for their client (you) and they most certainly dont work for HMRC.
Im still concerned about your repairs/improvements. Its not that they didnt need doing OP, its HMRC rules about whats allowable. They are really tight on whats a repair/replacement (using like for like it sounds like the windows were OK but all of them at once?) and whats a capital expense that increases the value of the property. (Potentially the balcony depending what was done using what)
Anything thats viewed as a capital expense and has therefore increased the value of your property is (as a rule) not tax deductable as a rental expense.
Exactly this flat roof leaking then you can replace for similar quality if you improve then this is a capital deduction for sale not a deduction for in year. There is a hefty peace of policy op needs to read to understand what is deductable for the year and what is only against capital gains on sale. People calling me out saying the figure op got was wrong but I'm thinking it might actually be close to correct as the accountant would be taking into consideration other earnings and what is deductable from the £9k list. Even if op spent £9k on maintenance it's only the 20% tax that would be an allowable expense. Usually like for like is all you can deduct so swapping a uPVC door for composite door would be an improvement and fall under capital expense I believe whereas replacing uPVC door for uPVC door would be seen as a maintenance for deduction again only the 20% tax that was paid for the door. Does op have student loan as that will also be factored in by the accountant I think I pay between £500-1000 towards mine if I remember correctly.
CBA to redo the sums, I'm having breakfast, but my first comment would be to ensure that it doesn't include a payment on account for next year
Second, has the majority of the 9k "maintenance" been included as revenue expenses, or as capital expenditure (to be relieved upon sale)
Was any part of your paye undertaxed?
Tbh without the computations were all just guessing. Post the comps (remove names/references) and it'll be there in black and white.
Source, I'm an accountant
Private or ltd
Yeah that doesn’t look right. Accountant is essentially saying you made 12K profit @ 20% tax rate.
You need to ask for a copy of the maths
Don't forget tax is on rental income as a whole not the profits. You then get £1k allowance followed by a few deductions your maintenance won't be fully tax deducatable only the things you are allowed to deduct and then it will only be the tax. £2300 is roughly what I pay and my rent pcm is far less than yours. Are you sure it is incorrect? Only tax on mortgage interest is deductable too at the interest rate not like it used to be.
It’s certainly incorrect. I know how much I make and how much I pay and OPs numbers don’t stack up.
If you are unsure you can plug your own numbers into here
Personal name? Interest is not deductible if so due to section 24.
You can claim 20% of the mortgage interest as a ‘tax credit’. The reason its classed as a credit is its only added at the very end of your tax calculations against outstanding tax due. This is to stop people claiming it as an allowable expense and therefore a potential refund if they are making a loss or breaking even.
So in short, if you owe tax at the end of the year, yes you can offset 20% of your mortgage interest youve paid in the year. I think OP has grasped that and was just giving us the big numbers, but if not and they thought all of it was an allowable expense, theyre in for another shock.
Yeah I kind of feel they thought it was all allowable and I think ops comment about expenses looks like they haven't understood the difference between like for like replacement tax deducatable and improvements for capital gains. I'm not saying the accountant is right or wrong but they might have seen the actual bills etc and calculated it based on what is legit to deduct.
Exactly. We’re totally blind to what OP has indeed submitted, but some of the glaring obvious areas that need clarification, jump right out. Their accountant will be able to explain…..and is more than likely correct having all this infront of him. Ive found it impossible to reverse engineer so somethings significantly impacting.
Isn't that more about how it used to be you pay tax on was was left after deducting mortgage interest now you can't do that so calculate tax owed on full rent and then correct me if I am wrong you then deduction 20% of the interest paid for the mortgage obviously this is far lesser amount that pre change legislation?
What do you mean paye earning £19500 2 properties let out?
Do you mean you earn £19500 and then £2300 from renting
How the fk can anyone help you work out tax if you can’t even make it clear what your fking income is
PAYE income: £19,500 • Rental income: £2,300 × 12 = £27,600 • Mortgage interest: £19,000 • Maintenance/repairs: £9,000 • Total expenses (interest + maintenance): £28,000
So you’re making £27,600 rental income, but spending £28,000. That means you’re actually making a loss from property, on paper.
I strongly doubt this is anywhere near your real numbers for them to think you have a tax bill of £2k
I don’t think you have a clue what your income is and what your repayments and costs are
Property taxes are different though so even if op is making a loss they are still liable for the tax as property works different to most businesses in that the whole income at source is taxable minus the allowable expense of £1k then a few tax deducatables op has added lots of expenses to the mix equalling £9k but some of these aren't allowed in the way op was thinking effectively op hasn't made money but does sound liable for some tax payment.
Ahh yeah I forgot the 2020 change bet this is about right then
Yeah I don't think it will be far off once we get the full breakdown of the accountants calcs