UK Landlord Forum / Life

Apologies, I have a relatively quick (and no doubt obvious Q) question re your overall earnings for a year.  Forgive my maths – I've obviously missed something obvious, but, brain fog, if someone could quickly flag it, appreciated.

Two scenarios (totally hypothetical, simplistic numbers):

Assume a regular salary: 100k
Tax rate 50%

Repairing a fence (totally tax deductible, maintenance and expenses):

BTL revenue: 10k
BTL 'ordinary annual maintenance and expenses (fully tax deductible)': 5k
BTL fence repair 'maintenance and expenses, (fully tax deductible)': 2k
Total BTL costs: 7k
BTL 'profit' therefore = 3k; tax @ 50% = 1.5k
Total takehome = 50% * (100+3) = 51.5k

Without the fence:

BTL revenue: 10k
BTL 'ordinary annual maintenance and expenses, (fully tax deductible)': 5k
BTL fence repair 'maintenance and expenses, (fully tax deductible)' = 0
Total BTL costs: 5k
BTL 'profit' therefore = 5k; tax @ 50% = 2.5k
Total takehome = 50% * (100+5) = 52.5k

So with the fence repair, even though your overall taxes are lower (1.5k vs 2.5k) on a totals basis, because you are taxed on total earnings/profits you are worse off for doing it???

That can't be right.
The only way I can make this work from a tax certificate basis is if they sum up your 'maintenance and expenses' costs (which are fully deductible), and take them out of your overall tax bill.

Thanks anyone,
C

Um.
Your business has spent two grand more in the "with the fence" model and earned the same income. And, consequently, it's made less profit.

You pay 50% tax, so the taxpayer basically subsidises 50% of your repair costs. So your £2k repair only costs you £1k.

The costs are fully deductible from your taxable income, not fully reimbursed.

Quote from: Chris S on November 02, 2024, 09:01:46 PMSo with the fence repair, even though your overall taxes are lower (1.5k vs 2.5k) on a totals basis, because you are taxed on total earnings/profits you are worse off for doing it???

You're £1,000 "worse off" in cash terms but, on the other hand, you've got yourself a £2,000 fence. You replace a fence because you believe it needs replacing, not for tax reasons.

Thank you both for taking the time to reply.

I was confused by the box 25 on the tax return "Property Repairs and Maintenance", said to be an expense that can be fully deducted against rental income (technically correct).

Assuming you have to do it (be it fence, paintwork, flooring, whatever), I'd assumed you would never be overall worse off in cash terms because you did it (i.e. yes you've did the repair, but only because it had to be done (not to improve), so your takehome would stay the same).

So in reality, you've done it, but, ultimately still picked up part of the tab out of your own pocket.

Taking the example one step further... let's say you have an agent that ups their costs by a few percent.

Box 27 "Legal, management and other professional fees".  Again, said to be fully deductible from rental income.

But (because of tax banding), you ultimately will bear some of that cost yourself.  Your takehome is reduced.

I think they make that statement a little confusing... as you say, in reality, the tax payer only ever really subsidises your "Property Repairs and Maintenance" – you'll always going to have to put your hand in your pocket for at least a bit of it.

Hence why, I suppose, certain unscrupulous landlords never bother to fix stuff.

Thanks both,
C