A New Year, a New Lockdown!
Happy be-lated New Year everyone! In the same vain, here is a late post to update you on our numbers for Tax Year 2019/20 (April 6th 2019 – April 5th 2020).
I am always at least a year or two behind on updating our numbers.
When I was first starting out way before this blog, I used to keep a closer eye on our spend by recording things in detail. I even used YNAB (You Need a Budget) for many years but gradually out-grew it.
As money started to make sense, at some point I went onto auto-pilot and could guess quite accurately how much we spent in each budget category without taking detailed notes. I found the return I got compared to the effort I put in to tracking our expenses diminished.
I do however use MoneyHub as part of Open Banking to track and categorise our expenses. It is something I’ve been doing for a number of years now and find it convenient to go through once or twice a year.
So, how did we do?
Do the numbers still suggest that we’re financially independent?
Gross Household Income
Our total gross income (pre-tax) for the year ending April 2020 was £136,445.
This was a drop of 13.8% from the previous year which was as a result of two factors:
- Mrs. CfC was on maternity leave for 12 months from March 2019.
- The previous year Mrs. CfC also had a retention allowance (bonus).
Mrs. CfC was given six months full pay, three months statutory maternity pay (£148.68 per week in 2019) and the final three months unpaid.
Our rental income increased slightly. This was more to do with reducing our void periods rather than raising rents.
We only increase rents on new tenancies to bring it into line with the prevailing market rate instead of raising them for current tenants. Our reasoning behind this is that we like to retain good tenants, and the rent is a big factor in that.
In total, our “Living Expenses” came £25,883, an increase of around 15% mainly due to groceries and our accommodation.
This year, I’ve separated out the council tax from the category “Military Quarters” (Service Family Accommodation – SFA). The £2,207 annual charge for our Service Family Accommodation includes the rent, water and sewage.
For any MoD readers, this is shown as “Accm Ch (Qtr)” on your payslip. The 25% increase represents the full calendar year we were in a three-bed house as opposed spending some time in a two-bed in the year prior.
“Utilities” include our council tax, gas and electricity. With a Service Family Accommodation, the council tax is paid directly from Mrs. CfC’s salary (CILOCT Qtr -“contribution in lieu of Council Tax”). The substantial increase was due to re-categorisation to better accurately record the expenses.
“Internet & Mobiles” is a new category. Mrs. CfC and I both took out new phone contracts which worked worked out to be getting a new phone we wanted for free on a Black Friday deal. It worked to be £35 each. The contract has since ended and we have kept the phone to go onto a much cheaper plan (£14pm = unlimited minutes, text and 40GB data).
Our “Groceries” expenditure increased again – that’s the second year in a row. We’ve been buying more fresh produce and limiting our meat consumption (personal, animal welfare and environmental reasons). When we consume meat, probably once a week compared to every day previously, we tend to buy organic or free-range. We also have an extra mouth to feed since we now have two boys.
“Clothes” was another area where we spent much more. Most of this was due to me getting promoted and I needed to buy a new suit, trousers and shirts. Moss Bros in case you’re interested – £325 for suit jacket, three trousers and six easy iron shirts (hopefully these will last me at least ten years like my last batch).
Nothing much more to say about our living expenses.
The “Mortgage Interest” on our properties continue to fall as we continue to pay the loans off.
Our Loan to Value (LTV) across all our properties was 10.8%.
This was calculated by taking the mortgage balance on all our properties divided by their value at the end of the relevant tax year. Their value was obtained by taking the lowest number on the Zoopla price range estimate for the property.
Speak to most property investor, professional BTL (Buy to Let) landlord or property developer and you will understand that our strategy not ‘normal’. Most of our mortgages are on repayment instead of interest only. This was because our goal had always been to get them completely paid off by 2025 to give us the freedom to travel whilst maximising our cashflow on those properties.
However, with what looks to be a sustained period of ultra-low interest rates, we may look to expand our portfolio in the coming years by increasing our LTV to between 25-50%.
Our “Other” costs include letting management fees. It increased this year due to the cost of finding new tenants.
This brings our Total Expenses before tax (Living Expenses + Business Expenses) = £45,627.
A few points to takeaway from this section:
- We invested and saved less this year compared to the previous due to earning less.
- We are slowly increasing our contributions towards our ISA as far as possible. We can’t divert too much away from our SIPP or work pension to ensure we remain basic rate tax payers. We do this to ensure we retain our Child Benefit and 20% Tax Credit on our mortgage interest for our rental properties.
- Our children’s SIPP and ISA contributions have increased due to having another child.
I separated out the type of taxes this year so ignore the annual change on this occasion. Last year I lumped PAYE and NI together.
We planned better this year with our taxes so only ended up paying back £17 of our Child Benefit. This was done by paying into our pensions sufficiently to stay within the Basic Income Tax bracket – the £17 was as a result of me marginally entering the Higher Rate Tax bracket.
Overall, we paid significantly less tax this year – due to lower taxable income from Mrs. CfC employment; but also better planning.
According the the numbers, although we learnt less this tax year, we are still technically financially independent.
Our Gross Rental Income (£57,155) divided by our Total Expenses including Property Income Tax (£53,479) = 107%; i.e. our rental income covers all the expenses we need.
We have a plan in place to reach our target FI goal which we intend to execute from tax year 2021/22. It does involved taking on more debt (tut tut!); I’ll explain more another time.
Our forever home is still progressing but still not exchanged or completed yet. Can you believe it has been since the beginning of August when our offer was accepted?
Finally, here is my FI Score Test result for this year:
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