How Does Property Income Affect Your Ability To Take Dividends

[joey122]

Say for example that you receive 10K a year in rental income. If you have no other income then you would pay tax on only 3K at 21% as your tax free alowance would not be used.

Does anyone know whether you would still be able to take out 30K dividends without further tax to pay? Does the rental income get treated differently somehow and remove that allowance?

I am thinking of buying a place and letting it out (Not easy I know) and want to understand the tax implications

[Fred Bloggs]

Interesting question to which I don't know the answer directly. The starting point for me would be to look at what I declare on my annual self assessment tax return. I'd be amazed if it wasn't covered on there.

[FarmerPalmer]

Say for example that you receive 10K a year in rental income. If you have no other income then you would pay tax on only 3K at 21% as your tax free alowance would not be used.

Does anyone know whether you would still be able to take out 30K dividends without further tax to pay? Does the rental income get treated differently somehow and remove that allowance?

I am thinking of buying a place and letting it out (Not easy I know) and want to understand the tax implications

Don't forget that th your 30K dividend is actually 37.5K gross.

I would expect there to be more tax to pay on 47.5K,
40% comes in when you reach 37.4K over your allowance

In this case 3K (taxed property income) + 37.5K gross dividend = 40.5K
so extra to pay on the 3.1K excess.

FYI:
http://www.hmrc.gov.uk/rates/it.htm

[northernladuk]

Say for example that you receive 10K a year in rental income. If you have no other income then you would pay tax on only 3K at 21% as your tax free alowance would not be used.

Does anyone know whether you would still be able to take out 30K dividends without further tax to pay? Does the rental income get treated differently somehow and remove that allowance?

I am thinking of buying a place and letting it out (Not easy I know) and want to understand the tax implications

I believe it is treat as unearned income and has to be entered in to a different section of your tax returns but adds to your gross income. Treated as having two jobs kind of thing. My accountant does mine so not sure of the exact ins and outs though.

Thing is you can offset alot of costs against this as well, the interest on the mortgage, a percentile amount per year against furniture, any DIY stuff you buy to <cough> do you rental place up, travelling to view it every other month and so on. It isn't that difficult to drop this to almost a loss every year. If you own the property outright and don't have a mortgage is a bit of a bummer as you can't claim the interest against the tax.

I know it's old but a good accountant should be able to clear what you can claim for and give you some examples.

Saying that I hope I haven't just told you how to suck eggs and you have already consided this and the 10k income is AFTER all this in which case I have just made myself look like a right plonker!

[rmmc]

Any rental profit (Rental income less allowable expenses) will be taxed as non savings income. You require to fill the property pages of Self Assessment Tax Return (I presume you own the property as individual)

10,000 Rental Profit
33,333 Gross dividend (30,000 net)

43,333 Total Income

6,475 less personal allowance

36,858 Taxable income as it is within basic tax rate band, so rental profit wuold be taxed as 20% on £3,525 (£10,000-6,475) = £705. And further tax to pay on dividend.

As other commented I recommend to speak to your accountant who would be able to go through the allowable expenses such as mortgage interest, insurance, rates, property maintenance, agents lettings fees. If let furnished a claim can be made for renewal of furniture or an annual wear & tear allowance of 10% of rent.

Don't forget that th your 30K dividend is actually 37.5K gross.

I am afraid the gross would be £33,333

HTH

RMMC

[richy]

I'm the same, however, mortgage almost exactly wipes out the rental income each month! Neatly canceling out. Although if "running at a loss" (mortgage costs you more than you earn back) you may be able to compensate by increasing your divs..?

(hoping someone jumps in to answer)

cheers, rich

[rmmc]

I'm the same, however, mortgage almost exactly wipes out the rental income each month! Neatly canceling out.

If your mortgage is repayment mortgage then I am afraid monthly instalment is not deductible in full. Just the interest portion is deductible.

If it is interest only mortgage then, you can deduct monthly payment as it is just the interest payment.

Although if "running at a loss" (mortgage costs you more than you earn back) you may be able to compensate by increasing your divs..?

(hoping someone jumps in to answer)

cheers, rich

You can pay combination of dividend and salary of up to £43,875 without paying any further tax. However if you pay more than £5,715 then you have to pay employers and employees ni. Also if you pay more than £6,475 you have to pay income tax as well. It would be worth noting that if you made a loss from let business you can not offset the loss against any other income, but you have to carry forward to offset against future profit.

HTH

[Olly]

I'm getting all confused here....
I take a salary of £6475
40% tax kicks in at £43,875
I can't take £43,875 - £6475 = £37400 as dividend but instead must knock of the Tax Credit (whatever that means)

so.....£37400 * 0.9 = £33600 dividend

.......there are things like gross bank interest to consider too which must be knocked off the £33600 too

is that all fine and dandy?
ta

[rmmc]

I'm getting all confused here....
I take a salary of £6475
40% tax kicks in at £43,875
I can't take £43,875 - £6475 = £37400 as dividend but instead must knock of the Tax Credit (whatever that means)

so.....£37400 * 0.9 = £33600 dividend

.......there are things like gross bank interest to consider too which must be knocked off the £33600 too

is that all fine and dandy?
ta

You need to add up all of your taxable income.
Investment income (such as dividend from listed companies, unit trust)
Bank interst is taxable income
Rental profit
emplpoyment income,
Taxable benefits
Pension income
any other taxable income

Take away personal allowance from the above

You can pay dividend upto the difference between above and basic rate tax band i.e. £37,400 without paying any further tax on dividend.
(ignoring gift aid donation, personal pension contribution etc)

[Olly]

You can pay dividend upto the difference between above and basic rate tax band i.e. £37.400 without paying any further tax on dividend.

So I actually receive, in my private account 37,400 * .9 = 33600?