Tax on income from renting a property

silvercar

Most BTL mortgages are interest only for two reasons:

a) tax treatment is better
b) exit strategy is to sell up

and in the case of recent purchases:

c) better cash flow as rents will probably not cover a repayment mortgage.

silvercar

Fire_Fox wrote: »

The rules on what you can claim are slightly different for the first and for subsequent tenants. For the first tenant you cannot claim the 'finders fee' from the letting agent, for example.

Don't think that is right, finding a tenant is always part of the letting business. The difference is in maintaining the property prior to the first rental; this wouldn't normally be considered part of the letting business.

theartfullodger

Westv asks

As it seems so hard to make a profit it makes me wonder why anybody would want to go into buy to let

- I think that is known in the trade as a "light bulb" moment....


B2L makes sense if...
a) House Prices go up compared to other investments of similar gearing..
b) Interest rates don't increase thus forcing even greater losses...
- both of which may not be dead certs. at the bookies this week!

Mind you there are still a few fly-boys flogging schemes they claim will get you rich-quick. I fear pigs will sing first!

? Still interested in the fun world of property letting???

Cheers!

Lodger

(PS Come on lads: Can all Landlords keep explaining how hard life is?? Might gain a little sympathy... ?? Nah, not a chance...)

Fire_Fox

silvercar wrote: »

Don't think that is right, finding a tenant is always part of the letting business. The difference is in maintaining the property prior to the first rental; this wouldn't normally be considered part of the letting business.

It's over four years since my first (and only!) tenant so my memory is imperfect and/ or the law may have changed. I certainly spoke to the taxman and was told that costs incurred before the first let were not deductible, and that included the first payment to the lettings agency. This made my mind up to employ the lettings agency to manage the flat, as the finders fee was payable instead of monthly percentage not in addition to. I am willing to accept I got the wrong end of the stick or was given duff advice.

steakpie81

Hi, I wonder if you could clarify at all. I have just srarted renting out my home which I previously lived in for 4yrs and have moved in with relatives. What tax would I need to pay? Is there any amount that will be exempt?

Gwhiz

steakpie81 wrote: »

Hi, I wonder if you could clarify at all. I have just srarted renting out my home which I previously lived in for 4yrs and have moved in with relatives. What tax would I need to pay? Is there any amount that will be exempt?

The last 3 years of ownership of what was your primary residence are free of CGT. Therefore if you rent out for 3 years and then sell there will be no tax to pay. If you sell after 6 years then years 1,2,and 3 will be taxable depending on whether the property increased in value.

adamjhuathan

Tax will accrue only where the profit accrues. This is the accepted principle worldwide. Any one is (t)axed only for the profits they gain from any business.

Fire_Fox

Spam links in signatures are not allowed.

silvercar

steakpie81 wrote: »

Hi, I wonder if you could clarify at all. I have just srarted renting out my home which I previously lived in for 4yrs and have moved in with relatives. What tax would I need to pay? Is there any amount that will be exempt?

INcome tax on the income you receive from the property ie rent, less the expenses you incur by letting it (including the interest on your mortgage.

Capital gains tax when you sell, though you will be exempt from CGT for the time is was your home and the last 3 years of ownership and reliefs like letting relief and your personal allowance will be available to you.

00ec25

steakpie81 wrote: »

Hi, I wonder if you could clarify at all. I have just srarted renting out my home which I previously lived in for 4yrs and have moved in with relatives. What tax would I need to pay? Is there any amount that will be exempt?

apologies if I have misunderstood your level of knowledge, there are 2 taxes you need to consider:

Income Tax
if not already done so, you must contact your tax office and ask to be sent a self assessment Income Tax form each year. Ask them to include the pages and guidance on rented property income. You will need to complete these as discussed above, showing both the gross income (ie rent you receive) and costs you claim against the income.
This will give you a net profit on which you will pay tax at your highest marginal rate (ie 20% or 40% as applicable).
If your costs > income and you make a loss, you cannot offset this against any other sources of income (eg employment salary), but can carry it forward to next year to offset against future profits.

Capital Gains Tax
In your case this will be payable when you sell your old home after it has been let for 3 years. You can claim your annual exemption amount and also lettings relief but don't worry about these until you need to, you will only pay CGT when you sell up