Paying tax on a rental property?

Eggcustard

Hi all,

This is my first post on these boards but have been lurking for quite some time. I have found it very inspirational and motivational to help pay off my huge credit card from the debt free wanabee forum (which I am nearly at the end of :j)

So I am looking for some help from you guys as I also have a flat that I rent out and am a bit stuck on how to work out if and how much tax I will need to pay (I have checked the direct gov website but it is as clear as mud to me!).

Basically I know I can deduct things like buildings insurance and ground rent from my profit which I pay but what about the actual mortgage?

I only earn around £250 per year once these 2 costs and the mortgage is paid but do they not account for the mortgage costs in your profit?

Sorry if I have posted in the wrong place, just reading the direct gov website is really confusing!

Eggcustard

CLAPTON

you can deduct the INTEREST on your mortgage from the rent to calculate profit but not the capital element

mlz1413

Copied and pasted from direct.gov website - surely this is clearer than mud?!

if your really stuck then employ an accountant - you can deduct that cost too.

Allowable expenses
The expenses you can deduct from letting income (unless it's under the Rent a Room scheme) include:

• letting agent's fees
• legal fees for lets of a year or less, or for renewing a lease for less than 50 years
• accountant's fees
• buildings and contents insurance
• interest on property loans
• maintenance and repairs to the property (but not improvements)
• utility bills (like gas, water, electricity)
• rent, ground rent, service charges
• Council Tax
• services you pay for, like cleaning or gardening
• other direct costs of letting the property, like phone calls, stationery, advertising

If your annual income from the letting is less than £15,000 (before you've taken off expenses) you include the total expenses on your tax return; if it's £15,000 or over you need to provide a breakdown.
Bear in mind that you can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it.
Non-allowable expenses

When you work out your profit, you can't deduct:

• 'capital' costs, like furniture or the property itself
• personal expenses - costs that aren't to do with your letting business
• any loss you make when you sell the property

Fire_Fox

Have you tried the Inland Revenue site? They are usually pretty helpful if you speak to them too.