Income tax rebate for property losses

mellomello

My mother lives in a property that I own. I receive rent of about £300 from the local authority but that doesn't cover the monthly mortgage that is around £700. Can I claim a rebate on my income tax?

trevormax

You can not claim the repayment of a mortgage as a loss against your rental income, but you can claim the interest of the mortgage as a loss. Depending on if it is a furnished let or an unfurnished let, you can also claim other things against it.

You can claim letting fee's and management fee's. Gas, electric, council tax and water rates if you pay these bills. You can claim repairs or replacement of items like a broken window or replacing a shower. But you can not claim a deduction when installing a shower if one wasn't there in the first place, this is classed as an improvement and will be dealt with by capital allowances I think. Any ground rents or gas certificates can be claimed if paid by you. Any insurance you pay can be claimed, as well a a bunch of other things.

If it is a furnished let (i.e. you provide the furnishings), you can claim 10% of the gross rent (minus water rates and council tax) as a wear and tear allowance, but you sacrifice being able to claim for replacing soft furnishings like a mattress or sofa.

Once you have taken into account your rent minus any deductions you can claim, whats left is taxable as your net profit which is taxed at the rate of tax you are paying (probably 20% unless you are a high earner). If your deductions are more than your rent, you can carry the loss forward to the next year. However, you can only set deductions and losses from rental property against rental income. You can not set a £1,000 loss on rental property against your wages for example. The only time this is possible is if it were a holiday let, but it is not in this case.

Any deductions you intend to make should have invoices and receipts to back up your claims should the rev decide to check them out.

mellomello

Thanks Trevormax, you have answered my original question i.e I cannot set off my rental loss against my wage tax bill.

You say you can carry the rental loss from one year to future years, so if I have a rental loss of £1000 in year one, a further loss of £1500 in year two but make a profit of £3000 in year three, I assume I would pay tax on £500 in year three? and how long can you carry a loss forward from one year to the next (I would assume this to be 6 years).

trevormax

Correct, if you have losses last year of £1,000 and losses this year of £2,000 you can carry £3,000 forward to next year.
. Your losses can be carried forward indefinitely for as many years as it takes for you to use it all up or you stop renting a property.

This HMRC website explains rental profit/losses and actually has an examply similar to the one you have given.

http://www.hmrc.gov.uk/manuals/pimmanual/PIM4210.htm

jimmo

Sorry to but in but if you are letting at £300 pm and your mortgage repayments are £700pm that really doesn’t sound like a commercial rent you are receiving.
If so, you will be wasting your time declaring losses and carrying them forward.
Take a look here http://www.hmrc.gov.uk/manuals/pimmanual/PIM2220.htm

trevormax

I think it would depend on the property. If it is a small property e.g. a 1 bedroom flat, and average market value is around the £300/month area, then it should qualify. If it is a 3 bedroom semi-detatched house then yes he is not charging market value.

In that situation, you can deduct losses from the rent but can not carry forward any excess losses. That property is also "ring-fenced" in that losses from it can not be used against other properties the you are renting.

mellomello

!!!!!!, the house is a 3 bed semi and the rent I receive (£300 is below the market level which would be circa £600).

But thanks for the information anyway.

LizzieS_2

I thought this type of letting was part of the annual capital gains tax allowance, in which case the losses do have to be reported to HMRC each year in order to qualify for the losses to be offset against the gains when the house is eventually sold.

Hope some-one can clarify this one further - If this house was previously in your mothers name, there were some changes in 2004 which means the person receiving the benefit of a lower than market value rent has to pay tax as if they were receiving that income - in this instance your mother is receiving a benefit in kind of £300pm.