I am considering purchasing a five bedroomed house and letting the rooms individually to tenants for 320 PCM each all in, so my take from this is predicted to be 19,200 annually, less bills, council tax, etc. Approximately what amount of this will be my tax liability, and what sorts of things can I write off against tax, assuming I won't have to pay tax on the portion taken for bills?
Marcus
Will it be a HMO?
"Marcus Fox" wrote in message news: snipped-for-privacy@giganews.com...
You need to look at a few on-line letting guides.
Generally you can't claim capital expenses against tax, but you can claim day-to-day expenses.
Council tax I'm not sure about, but if the tenants are all students for example, then they will be exempt.
And I think the rules are a little different between furnished and unfurnished.
Also you seem to be assuming 100% occupancy rate (and that all tenants pay their rents), which is often not the case. This can be important if working out whether you can make a profit.
And you must have some rules about usage of power, gas, and perhaps water, otherwise the bills will be through the roof.
If you have other income, the tax you pay could also at the 40% rate. And there'll be will be capital gains tax when you sell.
If you decide to use an agent to vet tenants and collect rents, you will then pay them 10-15% of the rents, plus VAT.
As a home in multiple occupation, the local council may have regulations about fire doors and so on.
In short, you have to think this through carefully!
Yes you can, but only against CGT, not against income tax.
Yes, including repairs. When is a capital expense not capital? When it's a repair. :-)
Council tax is something the tenants would normally pay themselves, as are other bills. So although the council tax (and other bills) are not paid directly by the tenants, they are still paid indirectly by them. This means that the gross rent coming in is deemed to include the cost of those bills, and so that part of the rent cannot count as lanlord's taxable profit. In other words, council tax and utility bills etc would all be allowable expenses for income tax purposes.
So of course is insurance and the cost of repairs, and interest on any loans used to fund the venture.
Yes. For furnished premises you have the option of *either* deducting the actual cost of repairs to and replacement of furniture and contents from income as an expense as it arises, or alternatively to claim a "wear and tear" allowance equal to 10% of the rent (using the value of rent after deduction of bills the tenants would normally pay themselves). If you do claim WTA, then the cost of repairs/replacement relating to contents becomes disallowable, but you can still claim cost of repairs and maintenance to the building itself (and to fixtures and fittings), which includes redecorating.
Yep
Yep
Not very likely. :-(
Shouldn't be as much as that, unless it's a full management deal. But whatever you pay agents will be adeductible expense for income tax.
Yep. Can add a lot to the initial capital outlay, and may involve nontrivial ongoing fees.
Local authorities are required to hold the owner rather than the occupiers responsible for Council Tax on houses in multiple occupation (HMO).
That's an irrelevance. The general rule is that the occupiers pay, and there is no reason why this should be any different simply because the number and type of tenants exceed the threshold which causes a property to become classified as an HMO.
The "hold responsible" in the advice you quote simply means that *if* the tenants for any reason fail to pay, the council will, as a matter of expedience, go after the owner rather than the tenants. It means the owner is responsible *to the council* for making sure payment is made, but it doesn't change the fact that the tenants are still ultimately liable for paying it, but of course if the owner has already squared things up with the council, then the tenants will no longer be liable to the council, but to the owner. The simplest way for any HMO landlord to deal with the potential problem of being pursued for his tenants' non-payment is to collect the council tax together with the rent.
The upshot of this is that for income tax purposes any element of the rent which the landlord collects does not form part of his taxable profit. Put another way, any council tax the landlord in fact pays out to the council will be an allowable expense.
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