Rental Income

Kilmaley01

Hello

I'm probably asking a ridiculous question on here but here goes anyhow. Unplanned initially but we have ended up with 3 houses. We lived in England but moved to Wales due to hubbys job - couldnt sell the house there so rented it out (3 years now). In 2006 we bought the home we live in in Wales and then in 2007 remortgaged the house in England to buy another property to renovate and hopefully make some money to throw at our huge mortgage here. That property was finished and on the market just at the downfall so it didnt sell - would have made us a profit of £40k if we got the asking price. Anyhow, that is now rented too. The rental for that one is £450 a month and the mortgage - now that the interest rate is so low is only £107 a month so we are making a tidy profit (tho we are STILL in debt). The property in England rental income after the agents have their cut is just under £450 a month and that mortgage is £200 a month. So at the moment with interest rates as they are we are making a profit of over £500 a month on the two properties. We keep receipts for most things etc for tax purposes but the reason for my post and my worry is, we are still in debt each month with credit cards etc tho trying to do a balance transfer now and pay off what we can, but we have put nothing aside for the tax man, nor told him. My question is, how does he (HMRC) find out about rental income etc - how long before they find out - what do they ask for when they do, i.e. back dated etc? Are there any laws that say you can make ex amount before having to declare it?

Sorry to rabbit on and I know some may think we are better off and shouldnt be moaning but short of selling the houses - we are in debt and need some kinda advice.

Jo x

clutton_2

""we are in debt and need some kinda advice. "

sell one of the houses - pay your capital gains tax - pay off your debts

Kilmaley01

Yes that is the obvious thing to do but tennants are exellant tennants and would like to keep the houses as investment for future, the debts are not very big and are being managed - my concern was "how much does the tax man" look for? And when?

Everything is in my hubbys name and he hasnt done anything about finding out about the tax - I'm just trying to get an idea of what we should expect to pay and when and how the ask/find out about it.

PasturesNew

Somebody will ALWAYS grass you up to the tax office. Pretty much fact.

No matter how you think you've covered your tracks, there's always sombody who dislikes you, or what you have, enough to make a quick anonymous phone call.

You have probably already broken the law because you haven't informed HMRC before now.

I presume all the properties are 'legally let', so you have the lenders' permission, the mortgages weren't obtained by any kind of deception, they are insured, gas certs all up to date, etc.

You know there's a problem - and you know that at some point this will all come back and bite you on the bum, which is why you're here... trying to work out how long you have before you're rumbled.

When .... could be any time really. Maybe somebody made that anonymous phone call yesterday, maybe it's on their To Do list for next week.

clutton_2

you only pay tax on any profit you make which = rental income minus all expenses such as mortgage interest only, repairs, insurance, etc see the inland revenue site for their downloadable booklet "taxation of rents"

i would get an accountant if i were you - fess up and pay him to minimise your tax bill

Geenie

OP, register and get your tax in hand. There are numerous reports in the press about LL's being a prime target for HMRC to come after. Your outgoings for the properties could mean that the tax due is not that big, but keep good records.

There are several ways they will eventually come to your door.....others claiming tax relief on work or rent they have paid to you! I have a tenant on HB. I doubt the local council would not forward my details to tax, and check up if I am paying. I also have had self employed tenants, who have had HMRC auditors going over their books. Rent I am sure would have been noted, and who it was paid to!

Get it sorted for peace of mind. Good luck.

silvercar

Get an accountant with experience in let properties.

Mortgage interest upto the value of the properties when first let is an allowable expense; no requirement to consider properties individually or to have the loans secured on the let properties. Depending on the dates of all your purchases, you could well find that some of what you think of as your home mortgage is aan allowable expense.

There are limits below which you don't have to notify the revenue in advance that you are letting property. That said once you are letting, you include the information in your annual tax return. Now rental income in the tax year 2006-07 would be included in the tax return for that year and submitted to the revenue by end January 2008. So you are only a year and a bit late. The revenue wants to encourage people to be honest, so a phone call now would probably be your best bet. Once you know the amount involved you can make arrangements with them to pay. Depending what work you have done to the houses and remembering that interest rates were higher a couple of years ago you may not have much, if any tax to pay.

sjcollett

You need to let tax man know you are renting out houses. They are really clamping down on landlords and will scour local papers/ talk with letting agents etc to track down people who are not submitting the right returns.

tbs624

Jo - see here: http://forums.moneysavingexpert.com/showthread.html?t=1814153
See also here and here

Why on earth is everything "in hubby's name" alone? If you've had one rental property for 3 years you/he need to crack on with getting your accounts up to date. Any money you owe Mr Taxman will have to be accounted for regardless of your transfers to clear off credit card bills.

As Pastures says, have you complied with other legalities relating to these rentals? Does your lender know that you are letting the second property out? Got LL insurances? Gas safety certs? Have you scheme-registered the T's deposit if contracts have started after/been renewed after 6 April 2007?

Sign up to the NLA or the RLA and read up on your full obligations when letting property. They can give you valuable advice on taxation matters - you need to be looking at how you schedule repairs/maintenance, for example - and their very own membership fee is a tax deductible expense (also gives you discounts on LL insurances).