HOw much tax do I need to pay when I let my PPR and rent a house to move for a job?
I know that ther have been similar questions to this but I wonder if you could clarify please? If I let me house at say £1,000 rent and rent another for say £1,000 rent then if I understand correctly I pay tax at my marginal rate on the full £1,000 after deduction of allowable expenses. But that would mean that I have say £570 left if I paid tax at 40% and had £50 expenses, ie 1,000 - 50 = 950 x 0.6 = 570. However that would mean that I then had to pay the balance of 1,000 - 570 = 430 from my other taxed income to put myself back where I started. Net result is that I am £430 worse off. Is this correct and reasonable? Clearly I should not expect to make an untaxed profit but also I should be allowed to deduct legitimate costs of generating the rental income. In this case it costs me £1,000 to generate £1,000 of income. HMRC say that they treat rental income as a business but that is not true if the statements above are correct?
I imagine very many people are in a similar position and would welcome views. Many thanks
Hello thank your for the reply - much as I thought.
It is of course not a rental business, its a rental made necessary by a job change
Whilst it is clear that[i] [/i]an individual should pay for his home out of taxed income, there is an issue here. If the net gain or income less outgoings (rent in minus rent out) is zero as demonsrated in my figures above, then there is no taxable gain. It is either treated as a business in which case the cost of making the house available by renting say next door, is a legitimate expense, or its not a business.
Consider a person who decides to downsize either for space reasons or to make some money.They move out of a house that generates a rent of say £2,000. Imagine they move next door to a house that costs £1,000 to rent. They have then made an excess of income over costs of £1,000 ignoring all other expenses. They should clearly pay tax on the £1,000 profit, but not on the £2,000 rental income - that is a nonsense.
Under the HMRC rules they will pay £400 tax on the £2,000 rental income, or £800 if they are higher rate taxpayer. Thus they will have £1,600 (or £1,200) left after paying tax and once they have paid the rent of £1,000 they will have £600 (or £200) remaining. If it were a business then they would have £800 (or £600) remainng after paying rent. They are thus £200 (or £400) worse off because of the way the arrangement is treated. This difference must then be made up from other taxed income that they may have so the effect is that they have to earn £250 (or £667) per month gross to put themsleves back to the same position as they started in.
Your comments would be welcome? have I got something wrong here or is HMRC making a gain here twice?
It would be even worse if somene had rental income of £2,000 and also rented at £2,000.Then if a higher rate taxpayer they would have to find an extra £1,333 per month gross to pay the rent - that cannot be right?
So in total in a year they would have to use £16,000 of their other gross income to pay rent, plus the after tax or net amount of the gross rental income (gross £24,000) which is £14,400 per year, toatl cost is thus £30,400 for a £24,000 annual rent. Note that the total cost is £40,000 before tax!
Best regards
or have to live in rented accomodatgion that costs either £800 or £600.
Your rental business would classify as a separate business. However, if you have a mortgage, you could claim the interest element of your payments as an allowable expense.
You can also claim either your actual provable expenses including agents fees and certification cost and actual maintenance, or 10% of the rental income if higher.
You are expected to pay for your own housing costs out of taxed income.
Mike
Hello thank your for the reply - much as I thought.
It is of course not a rental business, its a rental made necessary by a job change
Whilst it is clear that[i] [/i]an individual should pay for his home out of taxed income, there is an issue here. If the net gain or income less outgoings (rent in minus rent out) is zero as demonsrated in my figures above, then there is no taxable gain. It is either treated as a business in which case the cost of making the house available by renting say next door, is a legitimate expense, or its not a business.
Consider a person who decides to downsize either for space reasons or to make some money.They move out of a house that generates a rent of say £2,000. Imagine they move next door to a house that costs £1,000 to rent. They have then made an excess of income over costs of £1,000 ignoring all other expenses. They should clearly pay tax on the £1,000 profit, but not on the £2,000 rental income - that is a nonsense.
Under the HMRC rules they will pay £400 tax on the £2,000 rental income, or £800 if they are higher rate taxpayer. Thus they will have £1,600 (or £1,200) left after paying tax and once they have paid the rent of £1,000 they will have £600 (or £200) remaining. If it were a business then they would have £800 (or £600) remainng after paying rent. They are thus £200 (or £400) worse off because of the way the arrangement is treated. This difference must then be made up from other taxed income that they may have so the effect is that they have to earn £250 (or £667) per month gross to put themsleves back to the same position as they started in.
Your comments would be welcome? have I got something wrong here or is HMRC making a gain here twice?
It would be even worse if somene had rental income of £2,000 and also rented at £2,000.Then if a higher rate taxpayer they would have to find an extra £1,333 per month gross to pay the rent - that cannot be right?
So in total in a year they would have to use £16,000 of their other gross income to pay rent, plus the after tax or net amount of the gross rental income (gross £24,000) which is £14,400 per year, toatl cost is thus £30,400 for a £24,000 annual rent. Note that the total cost is £40,000 before tax!
Best regards
or have to live in rented accomodatgion that costs either £800 or £600.
Your rental business would classify as a separate business. However, if you have a mortgage, you could claim the interest element of your payments as an allowable expense.
You can also claim either your actual provable expenses including agents fees and certification cost and actual maintenance, or 10% of the rental income if higher.
You are expected to pay for your own housing costs out of taxed income.
Mike
Your rental business would classify as a separate business. However, if you have a mortgage, you could claim the interest element of your payments as an allowable expense.
You can also claim either your actual provable expenses including agents fees and certification cost and actual maintenance, or 10% of the rental income if higher.
You are expected to pay for your own housing costs out of taxed income.
Mike
Hello thank your for the reply - much as I thought.
It is of course not a rental business, its a rental made necessary by a job change
Whilst it is clear that[i] [/i]an individual should pay for his home out of taxed income, there is an issue here. If the net gain or income less outgoings (rent in minus rent out) is zero as demonsrated in my figures above, then there is no taxable gain. It is either treated as a business in which case the cost of making the house available by renting say next door, is a legitimate expense, or its not a business.
Consider a person who decides to downsize either for space reasons or to make some money.They move out of a house that generates a rent of say £2,000. Imagine they move next door to a house that costs £1,000 to rent. They have then made an excess of income over costs of £1,000 ignoring all other expenses. They should clearly pay tax on the £1,000 profit, but not on the £2,000 rental income - that is a nonsense.
Under the HMRC rules they will pay £400 tax on the £2,000 rental income, or £800 if they are higher rate taxpayer. Thus they will have £1,600 (or £1,200) left after paying tax and once they have paid the rent of £1,000 they will have £600 (or £200) remaining. If it were a business then they would have £800 (or £600) remainng after paying rent. They are thus £200 (or £400) worse off because of the way the arrangement is treated. This difference must then be made up from other taxed income that they may have so the effect is that they have to earn £250 (or £667) per month gross to put themsleves back to the same position as they started in.
Your comments would be welcome? have I got something wrong here or is HMRC making a gain here twice?
It would be even worse if somene had rental income of £2,000 and also rented at £2,000.Then if a higher rate taxpayer they would have to find an extra £1,333 per month gross to pay the rent - that cannot be right?
So in total in a year they would have to use £16,000 of their other gross income to pay rent, plus the after tax or net amount of the gross rental income (gross £24,000) which is £14,400 per year, toatl cost is thus £30,400 for a £24,000 annual rent. Note that the total cost is £40,000 before tax!
Best regards
or have to live in rented accomodatgion that costs either £800 or £600.
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HOw much tax do I need to pay when I let my PPR and rent a house to move for a job?
I know that ther have been similar questions to this but I wonder if you could clarify please? If I let me house at say £1,000 rent and rent another for say £1,000 rent then if I understand correctly I pay tax at my marginal rate on the full £1,000 after deduction of allowable expenses. But that would mean that I have say £570 left if I paid tax at 40% and had £50 expenses, ie 1,000 - 50 = 950 x 0.6 = 570. However that would mean that I then had to pay the balance of 1,000 - 570 = 430 from my other taxed income to put myself back where I started. Net result is that I am £430 worse off. Is this correct and reasonable? Clearly I should not expect to make an untaxed profit but also I should be allowed to deduct legitimate costs of generating the rental income. In this case it costs me £1,000 to generate £1,000 of income. HMRC say that they treat rental income as a business but that is not true if the statements above are correct? I imagine very many people are in a similar position and would welcome views. Many thanks
Answers
rolly1
,08 November 2010
,Lovemoney.com
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Answers
Hello thank your for the reply - much as I thought. It is of course not a rental business, its a rental made necessary by a job change Whilst it is clear that[i] [/i]an individual should pay for his home out of taxed income, there is an issue here. If the net gain or income less outgoings (rent in minus rent out) is zero as demonsrated in my figures above, then there is no taxable gain. It is either treated as a business in which case the cost of making the house available by renting say next door, is a legitimate expense, or its not a business. Consider a person who decides to downsize either for space reasons or to make some money.They move out of a house that generates a rent of say £2,000. Imagine they move next door to a house that costs £1,000 to rent. They have then made an excess of income over costs of £1,000 ignoring all other expenses. They should clearly pay tax on the £1,000 profit, but not on the £2,000 rental income - that is a nonsense. Under the HMRC rules they will pay £400 tax on the £2,000 rental income, or £800 if they are higher rate taxpayer. Thus they will have £1,600 (or £1,200) left after paying tax and once they have paid the rent of £1,000 they will have £600 (or £200) remaining. If it were a business then they would have £800 (or £600) remainng after paying rent. They are thus £200 (or £400) worse off because of the way the arrangement is treated. This difference must then be made up from other taxed income that they may have so the effect is that they have to earn £250 (or £667) per month gross to put themsleves back to the same position as they started in. Your comments would be welcome? have I got something wrong here or is HMRC making a gain here twice? It would be even worse if somene had rental income of £2,000 and also rented at £2,000.Then if a higher rate taxpayer they would have to find an extra £1,333 per month gross to pay the rent - that cannot be right? So in total in a year they would have to use £16,000 of their other gross income to pay rent, plus the after tax or net amount of the gross rental income (gross £24,000) which is £14,400 per year, toatl cost is thus £30,400 for a £24,000 annual rent. Note that the total cost is £40,000 before tax! Best regards or have to live in rented accomodatgion that costs either £800 or £600.
Your rental business would classify as a separate business. However, if you have a mortgage, you could claim the interest element of your payments as an allowable expense. You can also claim either your actual provable expenses including agents fees and certification cost and actual maintenance, or 10% of the rental income if higher. You are expected to pay for your own housing costs out of taxed income. Mike
Hello thank your for the reply - much as I thought. It is of course not a rental business, its a rental made necessary by a job change Whilst it is clear that[i] [/i]an individual should pay for his home out of taxed income, there is an issue here. If the net gain or income less outgoings (rent in minus rent out) is zero as demonsrated in my figures above, then there is no taxable gain. It is either treated as a business in which case the cost of making the house available by renting say next door, is a legitimate expense, or its not a business. Consider a person who decides to downsize either for space reasons or to make some money.They move out of a house that generates a rent of say £2,000. Imagine they move next door to a house that costs £1,000 to rent. They have then made an excess of income over costs of £1,000 ignoring all other expenses. They should clearly pay tax on the £1,000 profit, but not on the £2,000 rental income - that is a nonsense. Under the HMRC rules they will pay £400 tax on the £2,000 rental income, or £800 if they are higher rate taxpayer. Thus they will have £1,600 (or £1,200) left after paying tax and once they have paid the rent of £1,000 they will have £600 (or £200) remaining. If it were a business then they would have £800 (or £600) remainng after paying rent. They are thus £200 (or £400) worse off because of the way the arrangement is treated. This difference must then be made up from other taxed income that they may have so the effect is that they have to earn £250 (or £667) per month gross to put themsleves back to the same position as they started in. Your comments would be welcome? have I got something wrong here or is HMRC making a gain here twice? It would be even worse if somene had rental income of £2,000 and also rented at £2,000.Then if a higher rate taxpayer they would have to find an extra £1,333 per month gross to pay the rent - that cannot be right? So in total in a year they would have to use £16,000 of their other gross income to pay rent, plus the after tax or net amount of the gross rental income (gross £24,000) which is £14,400 per year, toatl cost is thus £30,400 for a £24,000 annual rent. Note that the total cost is £40,000 before tax! Best regards or have to live in rented accomodatgion that costs either £800 or £600.
Your rental business would classify as a separate business. However, if you have a mortgage, you could claim the interest element of your payments as an allowable expense. You can also claim either your actual provable expenses including agents fees and certification cost and actual maintenance, or 10% of the rental income if higher. You are expected to pay for your own housing costs out of taxed income. Mike
Your rental business would classify as a separate business. However, if you have a mortgage, you could claim the interest element of your payments as an allowable expense. You can also claim either your actual provable expenses including agents fees and certification cost and actual maintenance, or 10% of the rental income if higher. You are expected to pay for your own housing costs out of taxed income. Mike
Hello thank your for the reply - much as I thought. It is of course not a rental business, its a rental made necessary by a job change Whilst it is clear that[i] [/i]an individual should pay for his home out of taxed income, there is an issue here. If the net gain or income less outgoings (rent in minus rent out) is zero as demonsrated in my figures above, then there is no taxable gain. It is either treated as a business in which case the cost of making the house available by renting say next door, is a legitimate expense, or its not a business. Consider a person who decides to downsize either for space reasons or to make some money.They move out of a house that generates a rent of say £2,000. Imagine they move next door to a house that costs £1,000 to rent. They have then made an excess of income over costs of £1,000 ignoring all other expenses. They should clearly pay tax on the £1,000 profit, but not on the £2,000 rental income - that is a nonsense. Under the HMRC rules they will pay £400 tax on the £2,000 rental income, or £800 if they are higher rate taxpayer. Thus they will have £1,600 (or £1,200) left after paying tax and once they have paid the rent of £1,000 they will have £600 (or £200) remaining. If it were a business then they would have £800 (or £600) remainng after paying rent. They are thus £200 (or £400) worse off because of the way the arrangement is treated. This difference must then be made up from other taxed income that they may have so the effect is that they have to earn £250 (or £667) per month gross to put themsleves back to the same position as they started in. Your comments would be welcome? have I got something wrong here or is HMRC making a gain here twice? It would be even worse if somene had rental income of £2,000 and also rented at £2,000.Then if a higher rate taxpayer they would have to find an extra £1,333 per month gross to pay the rent - that cannot be right? So in total in a year they would have to use £16,000 of their other gross income to pay rent, plus the after tax or net amount of the gross rental income (gross £24,000) which is £14,400 per year, toatl cost is thus £30,400 for a £24,000 annual rent. Note that the total cost is £40,000 before tax! Best regards or have to live in rented accomodatgion that costs either £800 or £600.