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  • Tax

    Higher and lower tax paye rates - definition?

    Silly question but....

    If for example you were a landlord who only received money from rental properties. (ie no additional job). and you had an INCOME of say 60k but after costs make a PROFIT of 40k.

    Would you be a lower or higher rate tax payer?

    I'm a little confused as I know if your a an employee for example earning a salary you would be classed as a higher rate tax payer upon earning over around 45k.

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    Jacko, Have you factored S24 into your figures?

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    Jacko,

    Assuming the following;

    •  You are effectively a sole trader and complete accounts and a tax return each year
    • Your £20K costs are legitimately costs incurred in doing your property letting business ( not salary payments of any kind) and not any benefits in kind
    • You have deducted the interest payments / tax relief on finance correctly (as S24 above)
    • You are talking about the 17/18 tax year starting April 2017 ( Higher rate limit £33501 to £150000
    • You do not receive any further taxable income.

    You should pay tax on your profit not turnover, with the personnel allowance at £11,500  you would need profit after tax and costs of £45K to hit the higher rate.

    I am not a tax expert, please seek professional advice, I hope this helps for now. 

    Check out HMRC examples;

    https://www.gov.uk/guidance/changes-to-t...nance-cost


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    I am a landlord who only receives money from rental properties (and a small amount from savings).

    The rental income I receive each year is a little over £50k.  My non-finance expenses are ~£10k, and my  finance expenses ~£15k. Self employed people are allowed to deduct  most of the costs of doing business from their gross income and are taxed on the profits.

    My profit is ~£25k., but that is no longer the relvant number as there is a special rule for landlords commonly called S24. This is restricting the amount of relief for finance costs.

    Last tax year only 75% of finance costs could be deducted before the tax rate was calculated., That is decreasing by 25% each year  until it gets to zer

    In the example you gave you didn't distinguisg between finance and other costs. If they were 100% finance costs you would be right on the borderline for last yesr, but since there mist be some allowable costs. For this tax year they may or may not be a higher rate payer depending on how much of their costs are finance costs.

    Note that after the tax is calculated ignoring some of the finace costs you then get 20% tax relief on the part of the costs that was not deducted. If you remain a basic rate taxpauer this cancel out the change, but if you are or become a higher rate taxpayer  you would pay more tax.

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