going to OZ - renting to friend -mortgage/tax

b17lboro

Hi - bit of a dilemma here - I am going to OZ for 2 years and am getting confused about the mortgage and tax implications - really two separate things but could be related!

I have arranged a formal contract with a friend to rent my house (at a reduced rent as they will be trusted to look after it!!)

This does not cover the whole mortgage repayment - but I will be managing my feeder account while away to make sure everything is ok.

I have already explained on the phone about this to my mortgage provider but they have sent me a questionnaire to fill in - and to avoid having to change my mortgage - it states that any rent must 'cover mortgage repayments'.

The difference is only £50 a month and my mortgage has only 5 years to go so we are not talking about huge amounts.

There could also be a problem with tax - I need to fill in a NRL1 form (non resident individual to receive rental income as gross) as the rent is over £100 per week (annoying as it’s only a few pounds over!)


I don’t know what to do now! - The options I see are:

• Pay off some of my mortgage (with the lump sum I was going to leave to top up my repayments) to reduce the monthly amount to the rental amount. This satisfies BS - but does it have any tax implications?

• Reduce the rental to less than 100 per week so that I don’t have to do the NRL1 - but this reduces the mortgage repayments further!!

• Do nothing - write a letter to BS hoping it will be ok - fill in NRL1 form



Incidentally what does the NRL1 form do?? Benefit? - My friend also needs to get a 'number' for the form - where does he get that from???


very confused!!
Help!

jamesd

Some possibilities:

Reduce mortgage payments by increasing term, assuming that it is a flexible mortgage and you can make overpayments of the amounts you really want so that the mortgage ends when it would have ended anyway.

You wrote that your friend is expected to maintain the property. Increase the rent to what is needed for the mortage and pay your friend a fee to maintain it, so the total for your friend remains unchanged.

I expect the interest on the mortgage to be a deductible expense. Possibly one with capital gainst tax implications. Seek expert advice.

The NRL1 form is an application to have your rent paid gross so that you pay the tax yourself later. Otherwise your tenant would have to deduct basic rate tax from the rent paid to you and pay that deduction as tax. I suggest reading http://www.hmrc.gov.uk/cnr/nr_landlords.htm and http://www.hmrc.gov.uk/cnr/nr_landlords.htm .