Renting out my House while studying (and renting) in Cambridge

SimonBerry

Hi

I will be studying for 1 year from September in Cambridge. I am married and co-own my existing house in London with my wife. We wish to rent out our house in London while living in Cambridge for a year. We will rent a house in Cambridge.

On the surface, the rental income we receive from the London house will match the rental cost in Cambridge, but we are not sure on the Tax implications of this scenario.

The simple question is : Is there a tax-free way of doing this ?

The complications:
- As a 'rental business' I could say that I have zero income as a student and try make my expenses match the rental income, but my wife is still earning and she is a co-owner of the house.
- I read on direct-gov that you need to pay tax on income from a 'second house'. Can I say that this is still my only house, and thus not have to pay tax?

I am in no way trying to wangle out of paying taxes, but it does seem unjust that I loose out to the taxman because I have to move in order to study for one year...

Thanks for the advice.

Simon

Jowo_2

You pay tax on the income, less legitimate business expenses to manage it, such as letting fees, maintenance costs and so forth, less wear and tear allowance.
.

Here's a helpful link

http://www.landlordzone.co.uk/tax/taxation-property-income.htm

Nenen

Welcome to Cambridge Simon!

I am not an expert on this but I read on these boards recently that the interest part of your mortgage can be offset against rental income for tax purposes. However, the rent you will be paying on a Cambridge property will not be eligible. You could check if you can be named as the Landlord of your London home (hence the one receiving the income) and so you will also be able to claim your basic tax allowances on the rental income too. If in doubt, I have always found the local tax office to be very helpful in explaining how to do things tax efficiently rather than fraudulently! Contrary to popular belief, they are not about making you pay as much tax as possible, rather ensuring that you meet your legal obligations.

I am currently coming towards the end of a one year Masters course at Cambridge, so if there is anything specific to living and/or studying here you'd like to know please feel free to get in touch.

tbs624

If you own the property jointly then HMRC will view the rental income under a 50/50% split. Although you can only set the interest portion of any mortgage against rental income there are lots of other allowances that will soon add up.

For more info on allowable expenses, have and look here and here

You may want to consider joining one of the national LL associations - tax deductible membership fees, discounts on LL insurances and lots of valuable advice. You may already know that you need to obtain an EPC for your property, sort out gas safety certs, make sure that any furnsishings you leave at the property comply with fire regs, sort out tenancy deposits scheme registration etc. Presumably, you will have sought consent to let from your lender? Are you going to be using an LA to "manage " the rental for you?

SimonBerry

Thanks for the feedback guys.

In case anyone has a similar problem in the future, I called my local Tax office and their answer was:

- We have to pay tax on the rental income (less allowable expenses). There are no tax breaks for students or primary homes, etc.

- Because the house is co-owned, the income has be be spilt 50/50 with my wife. I cannot claim it all myself. This means that she will pay a higher tax on her portion of the income than I will.

- Up until now we had both been paying Tax by PAYE. We will now have to register for self assessment.

Which is kind of what the replies to my post were getting at - thanks!