Tax on rental income

JonC

Hello all,

I am in the process of letting out my residential property mainly due to the fact that I spent months working away from home and then when I am not working I stay at my partners house.

Currently my mortgage is approx. £580PCM, and it is a repayment mortgage, after visiting many a website I know have a clear understanding of what is classed as expenses and what I can and cannot offset as expenses. I have come to the conclusion that it would be better to switch my mortgage to a interest only mortgage, from talking to the lender this will mean that my mortgage repayments are reduced to £325PCM. My rental income will be £670PCM, the tenants are solely responsible for all utility bills, council tax etc., so the rental income, minus the allowable expenses will leave me with a sum that I pay tax on?, my question is, if I take the rental income and deduct the agent fees and Interest portion of the mortgage and invest this in a tax free ISA do I still pay tax on the remainder.

For instance,

Rental Income = £670.00 -
Allowable expenses = £520.00 (Agent fees, interest charges, Gas safety certificate, 10% wear and tear etc.)

Gives a balance of approx. £150.00, if say I invest £150pcm into a tax free isa, do I still pay tax on the rental income?

Thanks for any advice given

Kind regards

Jon

silvercar

Yes, you will pay tax on the rental income after expenses ie the £150, but you won't pay tax on the interest generated in the ISA.

JonC

Thanks for the info

clutton_2

i would be very tempted to not change to interest only and start clearing off some of the debt on the property - what sort of repayment vehicle do you have in place for repayment of the original loan if you change to IO ?

JonC

Hi Clutton,

Currently I have a C&G Mortgage will allows me to change the product type (i.e currently on Tracker to fixed etc.), make overpayments etc. at no extra cost. My plan was chnage to IO, and then use the surplus each month that the rental generates to put into a cash ISA and then payment off some of the remaining balance of the mortgage.

My concerns are how to make sure I minimise the amnount of tax I have to pay of the rental income, hence my plan to move to IO, or does it not make any difference what type of mortgage I have?

thanks

Jon

poppysarah

silvercar wrote: »

Yes, you will pay tax on the rental income after expenses ie the £150, but you won't pay tax on the interest generated in the ISA.

Do landlords pay NI?

JonC

A separate question if I may, C&G have just charged me the princely sum of £225 to allow consent to let the property. Am I allowed to offset that as allowable expenses?

Regards

Jon