Anne Murray is planning to buy a rental property, in addition to the family home she and Henry own. She is considering a property in Bristol costing £210,000. She has savings of £85,000 which she will use as a deposit but will need to borrow the remaining amount for the purchase. She has had a fixed-rate mortgage agreed in principle by Royal East Bank, for which she will be charged 4.75% interest.

She wants to know what income she might expect to get on her investment. Local agents have estimated that the monthly rent may be £1,450 per month, with agent’s fees for managing the property being charged at 5% of the rent.

Provide Anne with an estimate of the relevant costs of renting the property and the net rental income that she might expect to get. Anne has estimates for some of the other costs she will incur as follows:

Repairs and maintenance per year	£700
Property insurance per year	£395
Mortgage arrangement fee	£1950
Surveyors’ fees	£350
Solicitors’ conveyancing fees	£1050
Gardener	£870

Required:

1. Calculate the net annual income that Anne might expect from her rental property in the first year. 5 marks
2. Calculate the potential return on the income from her investment (ROI). 2 marks
3. Explain to Anne what tax will be payable when she buys the property.
   Calculate the tax that she will have to pay. 2 marks
4. Explain to Anne what tax will be payable when she sells the property.
   Estimate the tax she might have to pay if she sold the property in ten years’ time for £300,000, assuming that all tax rates and allowances are the same as this year, and the incidental costs of the sale were £4,500. 5 marks

Answer rating: 100% (QA)

EXPERT ANSWER Description Amount Annual rental income 1450 x 12 17400 Less Agents fees 17400 x 5 870 ... View the full answer