If i Let my property will I have to pay tax?

mattbell

My wife, daughter and I are are looking to reloate to be closer to family and jobs. We own a property but having bought 4 years ago are now in negative equity so can't sell it therefore would like to let the property.

We expect to get £700-£750 rental income each month with costs at -
- Mortgage £704 p/m (repayment - 2% interest)
- Monthly ground rent, service charges etc £125 p/m
- Letting agents fees 10%

Therefore we will be making a loss each month.

Do we still have to pay tax? My wife and I are both PAYE taxed

Thanks,

Matt

superfran_uk

Yes you will have to pay tax, and you will need permission from your mortgage company also.

shop-to-drop

No you only pay tax on profit made. You can't count the whole mortgage payment as an expense though only the interest.

mattbell

I've already got permission from the mortgage company.

How do I work out how much tax I have to pay?

shop-to-drop

Your main costs are going to be those mentioned. But you need to work out the interest payment on the mortgage. There are also other expenses I believe you can deduct like gas safety checks. I'm no expert but I'm sure there will be one along soon. Have you checked out the Tax Office web site.

shop-to-drop

I googles tax and renting and got this:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435

Should be all the info you need there.

G_M

Go to the library/Waterstones and get a good book on letting property! Check out Landlordzone forum too.
You'll need to pay tax but many expenses are deductable - as mentioned mortgage interest, some running costs, agents costs if you use one etc. However it's a complex legal/financial decision so you need to educate yourself/research the subject.

You may also fall foul of capital gains tax in the future if you sell and eventually make a profit on the property if it has not been your main residence.

mattbell

How are we making a profit on anything? we have to rent another home for ourselves to live in and are only doing this because we have to not because we want to?

If our expenses are more than the income then why would they tax us?

Gwhiz

mattbell wrote: »

How are we making a profit on anything? we have to rent another home for ourselves to live in and are only doing this because we have to not because we want to?

If our expenses are more than the income then why would they tax us?

Ignore the first reply. As you will be making a loss you will pay NO tax. You only pay tax on profit so if there is no profit there is no tax.

silvercar

Gwhiz wrote: »

Ignore the first reply. As you will be making a loss you will pay NO tax. You only pay tax on profit so if there is no profit there is no tax.

Agreed. Ignore the scaremongereing. If your costs are greater than the rental income, there will be no tax to pay. Also if you make a paper loss, you can carry forward the losses to the following year until such a time as you make a profit.

As for capital gains tax, if you are in negative equity chances are that it will be a long time until you have a capital gain on which to be taxed. Even then there is relief for the time it was your home, the last 3 years of ownership and lettings relief worth upto 40k. So it is unlikely you would have a CGT bill anytime soon.

roses

You pay tax on everything above the interest of the mortgage ie if you pay for your mortgage #400 interest and #200 repayment then you pay tax on the #200 repayment part.

The amount of tax you pay depends on how much you earn as the #200 will count as if it were your salary.

Sorry my pound key is not working!