From: "Doug Ramage" 
Newsgroups: uk.finance
Subject: Re: Buy-to-let tax questions
Date: Fri, 28 Nov 2003 08:42:10 -0000


"rt"  wrote in message
news:3a87eb86.0311271752.5b6d9db7@posting.google.com...
> Ronald Raygun  wrote in message
news:...
> > rt wrote:
> >
> > > I have a couple of questions that I'm finding it hard to get straight
> > > answers to elsewhere, re: buy-to-let properties.
> >
> > Deary me.  Where else have you been asking?  These are pretty
> > straightforward questions will well known answers.  Be sure not to
> > ask there about other aspects of the business.
> >
> > > 1) As I pay the 40%, i.e higher, rate of income tax, will I also be
> > > subject to this rate on unearnt income from a buy-to-let property,
> > > even if the income from letting is below the ~£30K upper threshold for
> > > the 22% tax band?
> >
> > You can wear as many hats as you like, in terms of how many businesses
> > you run or streams of income you have, but for income tax purposes,
> > it's not the hats that count, but the head.  You only get *one*
> > personal allowance, *one* starting rate band, and *one* standard
> > rate band, not one of each per hat.
> >
> > Or, in a word, yes.
> >
> > > 2) Is the service charge on a buy-to-let property considered an
> > > expense that you can offset against tax payments?
> >
> > Against rental income, yes.  It reduces your taxable profit, so
> > it only reduces your tax bill by 40% of the amount.  As a rule,
> > by far the biggest allowable expense is likely to be mortgage
> > interest.  And then there's insurance, repairs, maintenance,
> > letting agency fees, and, if furnished, you may opt for a Wear
> > and Tear allowance of 10% of the rental income (but if you do,
> > you can't then also deduct the actual cost of repairs to or
> > replacement of furniture).
>
> Guys, thanks for the responses.
>
> Ronald, I don't quite understand what you mean by '
> It reduces your taxable profit, so it only reduces your tax bill by
> 40% of the amount.'  Do you mean the maximum amount of expenses I could
offset
> against tax would be 40% of the rental income?
>
> Also, FYI the IR was one of the sources that gave me incorrect advice.
>  Occurring to the lady I spoke to there, it is the hats that matter!
>
> Thanks again.
>
> rt.

I assume RR means that an allowable expense is only worth 40% in "cash"
terms, for a 40% taxpayer i.e. the expense is deducted from the income, and
the net profit is taxed at 40% (or as appropriate).

Have you read the Inland Revenue's booklet IR150 "Taxation of rents. A guide
to property income"?

It's available from their website :

http://www.inlandrevenue.gov.uk/leaflets/c13.htm
--
Doug Ramage

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