rental income/loss - do i need to do a tax return

shootme

Hi. I've never done a tax return before as I've always just had employed earnings.

In July 08 I moved out of my mortgaged property and into a rented one (won't go into the reasons why as I don't think it's relevant). I didn't get my first tenant until March 09 (mainly due to taking a while to get permission from mortgage company) and unfortunately I fell into arrears with the mortgage. I'm assuming I will need to start doing tax returns now that I'm letting a property but do I put on as a loss:-

a) all the mortgage interest from July 08 to March 09 even though I didn't pay it for some of the months (I started paying it back in April 09)
b) just the mortgage interest payments I actually made
c) only mortgage interest from when the let started in March 09
d) only mortgage interest from when I got permission to let in Dec 09

If I can only put the payments I actually made, can deduct the arrears payments next year?

Let me know if I'm talking gobbldigook. I know what I'm trying to say but I don't know if I'm making sense.

Pennywise

Only the interest accruing for the period it was being rented out. Note that it isn't payments that matter, it is the period over which the interest is accruing.

shootme

Oh right. So I can't claim for any periods that the property is empty? For instance this year my first tenants moved out in Oct 09 and it was empty until Jan 10. I still had to pay the mortgage interest during this empty period.
Thanks

hells_2

From HMRC self-assessment website:

Who needs to complete a Self Assessment tax return?

If you pay tax on your earnings or pensions through PAYE (Pay As You Earn) your employer or pension provider deducts tax on our behalf and you won't usually need to complete a tax return. In these cases we'll normally also ask them to use the PAYE system to deduct any tax you may owe on a State Pension or other taxable income (eg investment or rental income) up to a certain level.
But if you have more complicated tax affairs you may need to complete a tax return. There are also certain circumstances in which you will always need to complete a tax return - for example if you're self-employed, a company director or a trustee or if you have foreign income.
Follow the link below to read the full detail on who needs to complete a tax return and to find out more about the different types of tax return.
Find out more about who needs to complete a tax return

Or in short:
income from property (after deducting allowable expenses) of £2,500 or more
Likewise, I am in an identical situation to yourself; and I haven't earned anything like £2,500 since letting my property last June (after mortgage interest, managing agents and insurance costs), more like made a loss!

If HMRC want me to do a return then I will wait for them to contact me I suppose!

shootme

Hells, if you're making a loss don't you need to do one to ensure that any losses are carried forward so that if and when you do start making a profit you can offset it?

As I said, I'm new to all this so I don't know but that was my reasoning for thinking about completing a tax return this year.

AGBAGB

You should be able to claim all the interest from the date when you started using the property to generate an income. That would cover a period before the first let when you where actively looking for a tennant.
You could do with some proof of when you "transfered" the house to a "Rental property". May be a dated letter from when you approached the bank would be sufficient.
Any losses can only be carried forward to offset future years profit.
There are many tax issues, allowences etc. that you can claim. Its a complex area that needs hours of detailed research or the services of an experienced tax proffessional.

There are also many legal requirements on landlords, just cos you only have one property doesn't let you off the hook. Gas check, deposite protection, insurance. I hope you have all these things sorted.

Hells, Have you misread the HMRC docs, or are you talking about the Rent a Room (in your own dwelling) exemption?

If you are recieving rental income you should declare it even if the balance after expenses is a loss! It is your resonsibility! If you had a job on the side whilst on benefits would you keep quiet about that as well?

shootme

Thanks yes gas checks, insurance, deposit protection all in place.

hells_2

AGBAGB wrote: »

Hells, Have you misread the HMRC docs, or are you talking about the Rent a Room (in your own dwelling) exemption?

If you are recieving rental income you should declare it even if the balance after expenses is a loss! It is your resonsibility! If you had a job on the side whilst on benefits would you keep quiet about that as well?

Don't think so, I simply copied it word for word from HMRC's "Who needs to do a self-assessment return" page.

I did wonder and when I read that the other day I presume they mean that up to a certain amount (i.e. £2,500 after allowances) they wouldn't seek to ask you for a return, simply via your employment PAYE instead.

But, nonetheless I will double-double check as I don't fancy a £100 fine.
Will do it this afternoon at work (nothing else to do!)

shootme

Hells I just found this on LandlordZone which may be helpful:-

http://www.landlordzone.co.uk/tax/self-assessment

I think you're right - you don't have to do a return but you do still need to write to them.

AGBAGB

Good on y' shootme,
There's plenty out there who don't do things properly. Being a Landlord is a weighty responisibilty, I'm glad you're putting the effort in to do it right. Hope it all goes well.

On the tax issue, I consider the present system as fair there's alot you claim legally for and I'm happy to pay my dues on any real profit. A tax book I've found useful is - How to Avoid Property Tax ISBN 1-904608-36-6.

AGBAGB

Hells, That £2500 is new to me! we live and learn. It your case it could be worth have a look at, if you can declare a loss without filling in a tax return?
I'm cynical about the HMRC motives for the exemption.