Tax calculations for tennants in common

Landlord Discussion
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I’m about to become a first time landlord - just had an offer accepted on my first BTL property!

Just so I can check I’ve got my numbers right though, I was hoping someone could answer some questions about how tax will be worked out. To set the scene a bit, I’m a higher rate tax payer, but my wife isn’t. We’re going to do a tennants in common arrangement where we each own a different size share of the house, eg, share1 = 90%, share2=10%

I think this makes the tax calculation like this:

Tax payment = ((0.20 * (share1rental fee)) + (0.40 * (share2rental Fee)))

Something I was reading today though got me wondering if you just pay tax on the profit, so not the rental fee, but everything after fees have been taken out, ie:

Tax payment = ((0.20 * (share1*(rental fee-mortgage payment-agent fee))) + (share2 * (0.1*(rental fee-mortgage payment-agent fee))))

Does anyone know which is correct? Or are they both wrong?!

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They are both wrong…

You do pay tax on profit to an extent so you can deduct agent fees and like for like maintenance costs. You can’t deduct mortgage costs but you do get a 20% tax credit on your mortgage interest costs which you can use to reduce your tax liability but wont cover it fully for higher rate payer but would for basic rate payer assuming rental income doesn’t put them in higher rate bracket.

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I’d recommend signing up for some of the HMRC webinars if you’re planning on doing your own tax returns.

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Ah no, definitely going down the accountant route. Just doing this so I can project how much we’ll need to put aside to pay the tax bill at the end of the tax year.

@Richard19 - We’re doing an interest only mortgage, so does that not affect it, ie, the whole mortgage payment is just interest?

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