First job, new money situation - help/advice needed

[hiphophurray]

I would greatly appreciate any advice! I am finishing my PhD (thesis writing now!) and just signed a contract for my first proper job. My salary will be 47k + 20% bonuses, I will also get a company car and have student loans (undergrad and postgrad).

I will have to move for the job and currently have a mortgage on the property I live in now, but I can't afford to buy where I'm moving. I was thinking of becoming a landlord for a couple of years and then hopefully move back to this area but I've just been reading about paying tax on rental income so I'm not sure if it will be affordable. I also know nothing about self assessment tax forms and prior to this my highest wage was 18k, and I don't pay tax on my PhD stipend.
I've been advised the property would achieve around £950 a month being rented out, and the mortgage, property management fees, maintenance and insurance would be covered by this.

What would you do in this situation? I was thinking of asking a tax advisor or an accountant but I can't find quotes for how much an appointment would cost except one online one which was £120 for 30 minutes but right now money is tight on a PhD stipend!

I’m in Ireland so it might be different where you are but being a landlord is not something I would be getting into, as it is a total nightmare here.

i hope you get some good advice here and save yourself the accounts fees! All the best.

You’ll get some good help shortly, but my understanding is that the whole 950 is taxed, and as your salary is 47k (and you have the car BIK) that means all the 950 is at 40% tax. So you’ll pay 380 a month and have 570 left. Would that cover all the costs?

I'm fairly sure that while you can't offset mortgage interest against your taxable income on a rented out property anymore, you can still offset property maintenance, agent fees and probably some other things as well. So it won't necessarily be taxed on the entire rental income (but will be a substantial part of it and PP is right that it'll be taxed at 40%)

No, that's not right. When you do your tax return you deduct maintenance costs, mortgage interest (not capital repayment), agency fees first, then get taxed on the balance.

It's all explained on gov.uk

You'd be taxed on the profit, not the whole thing. You can therefore deduct the interest on the mortgage (not any capital repayment), insurance and letting agent fees from the total rent received.

You're about to get a PhD (congratulations!) - you can work out how to fill in a self-assessment form.

Great thank you. That makes a lot of sense and means I can work out if its affordable! Tax feels like a bit of a minefield for me at the moment, I'm still yet to fully understand company cars and pensions but want to be as financially savvy as possible from the beginning

Congrats on the job and PhD by the way!

You’re all quite right, the whole “profit” on the rent after costs is taxed.

you wouldn’t believe I’m in finance! (Not tax though)

And this too

You can’t deduct the interest paid on the mortgage anymore. You get a 20% offset I believe but pay tax on the rest of the interest paid. I think you pay tax on the entire mortgage amount now (all changed recently).

Basically the government wants you to run it like a business but tax you as a person. You can only offset management fees, maintenance, some wear and tear.

Frankly it’s not worth it especially as when you come to sell you’ll have a capital gains tax bill to pay.

Sorry -it's more complicated than that.

Since April 2020, you've no longer been able to deduct any of your mortgage expenses from your rental income to reduce your tax bill.
Instead, you now receive a tax-credit, based on 20% of your mortgage interest payments.
This is less generous than the old system for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments.

Worked example here;
Assuming a landlord takes in £950 per month rental income, and makes mortgage interest payments of £600 per month.

• They'll pay tax on the full £11,400 rental income they earn
• They'll pay £7,200 in mortgage interest
• They'll get a tax credit of £1,440 (£7,200 x 20%)
• A basic-rate taxpayer will pay £840 - no increase compared to the old rules
• A higher-rate taxpayer will pay £3,120 - double the amount payable under the old system

Yes you can still deduct other expenses though such as agent fees, repairs, insurances etc.

The self assessment form is pretty self explanatory when you come to fill it out- it does go step by step and you fill in the sections that a relevant to you. It does the calculations for you at the end.
You can always get an accountant, it's not as expensive you'd imagine and they'd sort it all out for you

Self assessment- once you set it up (dam you government global gateway) is pretty straightforward. I'm terrible with finance but even I can do it. Get a file and put in every receipt to do with the house and then you have it all to hand. Or set up a separate rental account for everything to do with it.

My caveat would be the quirks you are prepared to tolerate in your own home won't be tolerated by a tenant! You also need gas safety certs and possibly an energy rating. I'd use an agent to rent it out as they can do credit checks etc.

Yeah, I was simplifying the details because the starting point is that you still need to declare on the form the total amount of mortgage interest that you paid, even though it's not completely deductible. I just get the statement from my bank, plug in the total figure then HMRC do the calculation.

My agent handles all the rent and repairs, they send me a yearly statement for each tax year and I just transfer the figures across to the self-assessment form. It's worth getting an agent who will do this even though more expensive.