Renting my house on a consent to let - Do I have to pay income tax?

ahfh1

Hi,

I have just bought a house, but have not yet sold my old home.

Seeing as the housing market still has not picked up yet in my area, I have decided to rent out my new home for 1 year whilst I sell my old home (in which I will stay in and keep it looking spic and span). I also decided not to move into the new house because it's in an area that is in high rental demand. You could say I have become one of these 'accidental landlords'.

I have obtained a consent to let on the new house. However, do I have to pay income tax on the income? The rental income just about covers the mortgage and agency fees, so I'm not making any profit.

Thanks

VIGILANT22

Are you calculating this on a repayment mortgage or interest only?

Cardinal-Red

In general, you should be able to get things organised so that you pay minimal if any Income Tax on the rental.

However, as the other poster is hinting at, only the interest on the mortgage is an allowable deduction, not any capital repaid. If this is a new mortgage it's going to be mostly interest anyway but it's an important point.

Sensible maintenance costs and incidentals (advertising fees, safety certificates, your agency fee etc) can all be deducted as well.

VIGILANT22

ahfh1 wrote: »

Hi,

I have just bought a house, but have not yet sold my old home.
Seeing as the housing market still has not picked up yet in my area, I have decided to rent out my new home for 1 year whilst I sell my old home (in which I will stay in and keep it looking spic and span). I also decided not to move into the new house because it's in an area that is in high rental demand. You could say I have become one of these 'accidental landlords'. I have obtained a consent to let on the new house.
Thanks

By yr postings I think you've done this off yr own back and taken no professional advice.....

Maybe something to consider.......

Bringing what was yr residence into the business (btl is business/investment)...you can release equity for deposit on new home and claim tax relief on both properties...

[URL="mhtml:{144FE44D-54A8-458E-8DC1-3E719B61166D}mid://00000067/!x-usc:http://www.hmrc.gov.uk/MANUALS/BIMMANUAL/bim45700.htm"]http://www.hmrc.gov.uk/MANUALS/BIMMANUAL/bim45700.htm[/URL]

ahfh1

The mortgage is a repayment mortgage.

Correct - I've done this off my own back and taken no professional advice.

It's a new mortgage as well, so yes, most of the payments during the initial repayment term will mostly be made up of interest. I'm guessing I'll have to find out from my lender what proportion of my repayment is made up of interest, and this will be the allowable deduction.

Having said that, I never intended for this to be a business. I just want to let out the house for a year so that the mortgage on it is covered whilst I sell my old house, so is this really deemed as a 'buy to let' situation?

Regardless of whether it's a 'buy to let' or a 'consent to let', it does sound like I'll be liable to pay tax. I reckon the tax won't be much due to the rental income just about covering the mortgage (mostly interest) and incidental fees, meaning any profit will be close to zero.

VIGILANT22

The capital part of a repayment mortgage is treated as investment/ ie taxable...if you had taken advice you could have been claiming interest on both properties.......

Trollfever

I never intended for this to be a business

At the risk of starting WW III, it is a business.



.

Fire_Fox

ahfh1 wrote: »

The mortgage is a repayment mortgage.

Correct - I've done this off my own back and taken no professional advice.

It's a new mortgage as well, so yes, most of the payments during the initial repayment term will mostly be made up of interest. I'm guessing I'll have to find out from my lender what proportion of my repayment is made up of interest, and this will be the allowable deduction.

Having said that, I never intended for this to be a business. I just want to let out the house for a year so that the mortgage on it is covered whilst I sell my old house, so is this really deemed as a 'buy to let' situation?

Regardless of whether it's a 'buy to let' or a 'consent to let', it does sound like I'll be liable to pay tax. I reckon the tax won't be much due to the rental income just about covering the mortgage (mostly interest) and incidental fees, meaning any profit will be close to zero.

You don't only pay income tax on a BTL, this is income therefore it is taxable! Have you considered what you are going to do if your tenants don't pay rent, trash the new house or completely ignore a notice to quit? You do understand the minute you let this property it becomes the tenants home and you lose most of your rights to it for the duration of the tenancy?

Please do NOT become an accidental landlord, become a professional landlord - for your tenants sake and for your own. A letting agency may take on the day to day management but legally the buck stops with you (reams and reams of legislation).

If you old house is not selling then it is overpriced for the current market. As you have two mortgages running concurrently it seems likely you can afford to take a hit on the selling price, why not price to sell and move into the new house as you originally planned?

VIGILANT22

I am very disappointed in this "Consent to Let" lenders are currently permitting..Inexperienced "landlords" are entering the system on residential rates, don't have the correct insurance's in place to protect tenants, simply because they dont know as they have become "accidental" landlords....gas certificates?/tenants deposits/registered in Scotland...don't know the meaning of rental voids........and this has been allowed on the back of "not being able to sell a property".........It will be interesting to see in the future, how many of these will end up as repossessions.......

ahfh1

So going back to my main question, we can conclude that tax is indeed payable.

chucknorris

ahfh1 wrote: »

So going back to my main question, we can conclude that tax is indeed payable.

Yes but only on actual profit if there is any i.e revenue less all ALLOWABLE expenses