Tax on rental prperty

mac_534

My wife and I moved house about a year ago but we didn't sell our last house. We allowed a friend to start renting it from us last July for £450 per month excluding rates, we have an interest only mortgage on the property of approx £300ish a month. I obviously have to let my tax office know about this income so I imagine that giving them a call should get the ball rolling. As far as the amount of tax I will have to pay is concerned, would anyone have even the very roughest idea of what I will have to pay on this income? I've had a few expenses with the property so far of approx £900 where I have had to replace items etc.

Many thanks for any advice

ET1976

Making some assumptions here - you are a lower rate tax payer, you are employed, your earnings from employment use up your tax allowance, and your expenses are all deductible - a very rough tax calculation for a year would be:

Income: £5400 (£450 x 12)
Tax deductible expenditure: £3600 (£300x12) + £900 = £4500

Taxable income = £900
Tax due = £200 (approx. - not sure whether is 20 or 22%)

As you say, phone the tax office to get the ball rolling. You might find the link here useful.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814

Ian_W

You'd better get a move on as some of your income was earned in 2008/9 tax year by the sound of it. Haven't needed to fill in a SA tax form myself for a couple of years but when I did it had to be returned by 31 Jan the following year - otherwise a £100 penalty for late submission.

Basically you're taxed on the profit so you can deduct mortgage interest and other legitimate running costs inc repairs and you then pay tax on the balance at your highest tax rate (20% if base rate, 40% if higher rate). If the house is jointly owned then really you should split the income and expenses between you and both submit a return, which could be advantageous if either is a non-tax payer.

ET posted whilst I was typing - but some points don't overlap.

clutton_2

look un a pamphlet known as IR150 on HMRC website - this will tell you all the expenses you can claim.... i think you can put in an estimated version to the revenue... and amend later on ... maybe an accoutant can help us out here ?

Ian_W

clutton wrote: »

... maybe an accoutant can help us out here ?

That might be a very good idea as I've just co-incidentally read in an article that you've missed the deadline of 31/10/09 for filing a paper return for income you received on or before 5/9/09. You can still file online but you need to register at www.hmrc.gov.uk/sa and it takes a week or so to get your log-in details.

When we had an overseas rental property I used a small local accountants and provided I got the figures together for him he used to charge about £75, which is obviously cheaper than a £100 penalty and IIRC is an allowable expense. Might be worth having a ring around to see what ones local to you might charge.

clutton_2

but do ask if they have property themselves, or how many property clients they have... the property" business" is a complex affairs HMRS-wise, and if you get the wrong advice initially it could cost you dear... i used a poor one a few years back (un-known to me) and when i moved to another property guy, we had to re-submit my previous years returns to stop me getting a large tax bill in future years....

mac_534

Thats fantastic advice guys, I'll get on the ball first thing tomorrow re getting a local accountant who knows his stuff.

Thanks very much for being so helpful!