2nd property income not declared - UPDATED!!!

olivetrees

Hi all

My husband and I bought a 2nd property in December 2003 we were planning to relocate however the promised job offer did not happen so in February 2004 we rented the property out.

This didn't work out well at all as the rent was less than the mortgage so we looked to sell and although this took a long time we sold in December 2005 for £18,000 less than we bought for.

So a disaster all round that I would prefer to forget. However today I recieved a letter from the tax people saying that we need to contact them regarding income we should have declared. I had assumed that as we were making no profit we wouldn't have to declare anything. I also don't have any financial records for this now to prove it so I've no idea where to go next!

Any help would be appreciated!
Thank you

Annisele

Are you sure HMRC's letter relates to the house?

If it does, then it's possible you made a monthly (income) profit, but a (capital) loss when you sold. You'd have had to pay income tax on any income profit that you made, and then capital gains tax on any capital gain - and you can't offset capital losses against your income. There are exceptions; for example if you are a property developer then you might be able to argue that your £18k loss should be put against income, but it doesn't sound as though that's the case.

Did you have a repayment mortgage? If so, and the rent was more than the interest part of your mortgage, you might have been making a small profit each month.

Did you put everything through your bank account? If so, your bank should still have records.

silvercar

CGT: As you made a loss there is no tax to pay, but you should declare the loss (and could utilise this if you had any gain in the same year as sale.

Income tax: If the interest on your mortgage was more than the rent you will be OK, don't confuse the payments on a repayment mortgage with the interest. If you dig out old mortgage statements you should be able to work out the payments and interest. Search your bank statements for rental income and any other expenses you have paid for the property.

RAS

You actually need to declare the income, even if you made a loss. How do they know you made a loss otherwise?

As for the sale, you could off-set that loss against other capital gains tax liabilities.

olivetrees

blimey you lot are faster than the speed of light! The mortgage was interest only. We definately made on loss on everything - the place was just a money pit.

The rent was over £100 less than the mortage, on top of that there was £100 a month service charge (flat was grade 2 listed) and we also had to fork out £1800 on maintenance to the windows.....in total it cost us about £40,000.

Thank you for all your replies x

diable

Do you have everything documented?

Annisele

OK, in that case you should be fine.

You should have declared the income anyway - but IIRC the maximum fine is a multiple of the unpaid tax, which means no unpaid tax = no fine.

Your mortgage lender at the time should hopefully still be able to provide you with statements. However, to start with it's probably worth telling HMRC what you've said above and see what they say.

Fire_Fox

olivetrees wrote: »

blimey you lot are faster than the speed of light! The mortgage was interest only. We definately made on loss on everything - the place was just a money pit.

The rent was over £100 less than the mortage, on top of that there was £100 a month service charge (flat was grade 2 listed) and we also had to fork out £1800 on maintenance to the windows.....in total it cost us about £40,000.

Thank you for all your replies x

You should have bank statements showing the income, ask the lender for a statement of what you paid out on mortgage interest, write to the freeholder of the property and ask for a statement of service charges and major works for the relevant period. You may well have to pay for this information - if they get awkward I think you can just do SARs which I think is £10.

olivetrees

JUst to say a big thank you to everyone for their advice. I wrote to them stating all of the above and got a letter back saying that they consider the matter closed. Am amazed that happend and its a great weight off my shoulders!

xxxxx