Renting my House and buying a new House Do I have to pay Tax on the rent

cralittlewood

Hi,

I own my own house and do not have a mortgage on the property. I am planning on buying a new house and was going to rent out my present house and get a mortgage for the new house.

If I was to rent out my present house for say £600 per month would I have to pay tax on this, or could I use the money to put towards the mortgage on the new property.

Thanks in advance for any advice.

sshnuke

as long as its above a certain amount per tax year i.e £4250 yes you will.

the inland revenue actually has an excellent guide for this http://www.inlandrevenue.gov.uk/pdfs/ir87.htm

deemy2004

As above poster, rental income is taxable income against which allowances can be claimed.

garysletters

if you already have a job, this will take you over the tax threashold mentioned above. Yes, rent coming in is an income, and is taxable in the same way as a salary. There are expenses you can offset against the rent, i.e. any of your expenditure in renting the house out/maintaining the house. These include mortgage interest (not capital repayments), wear and tear of furnishings, repair costs, management costs etc etc.

cralittlewood

Thanks for the answer, not the one I wanted. Think I will be selling house now, don't think its worth renting now that I have to give part of it to the tax man.

Cheers.

manic

The taxman always gets his slice :mad:

You could re-mortgage your current house on an interest only BTL, so that your interest payments & allowable expenditure come to just under the rental income. As you get tax relief on the interest payments & expenditure, you only get taxed on what is left.

E.g. £7200 rental income (£600 per month) - £6000 mortgage interest payments (£500 per month) = profit of £1000. You then have certain expenses allowable against that, which will reduce the profit even more.

You could then use the re-mortgage money as a deposit for the new house.

I would speak to an accountant, who would be able to advise you on the tax implications.

There is a thread on what you can claim against tax here :

http://forums.moneysavingexpert.com/showthread.html?t=21206

cralittlewood

Manic thanks for the advice, I was thinking I might be able to do something like this, but it is a bit too complicated for my liking and I don't really want all the hassle of setting up a mortgage on my present house and my new house.

Will have to give it some serious thought but at the moment I am thinking about selling my present house.

The only thing making me not do this immediately is that when I bought it a few years ago it had outline planning permission for another house to be built in the garden. I think this has now lapsed and so I am keen to try and get this planning permission again to hopefully add to the price that I can get for the property.

Thanks again for the advice.

sshnuke

garysletters wrote:

if you already have a job, this will take you over the tax threashold mentioned above.

the tax threshold referred to relates solely to income from property. i.e if you receive only £4000 per year from letting your home that amount is tax free as it is below the threshold. happy to stand corrected on this if i'm wrong.

thaylock

An accountant told me if you have paid your mortgage off completely & then decide to mortgage the house again & rent it you will not be able to claim the interest on the mortgage as an expense. The accountant advised it's best never to pay off your mortgage completely if you plan on renting the house out in the future, leave 50p on the mortgage. You are probably better off selling your house, buy your new house & also put a big deposit down on a buy to let. Never mind, I have 2 houses with no mortgage, now I know to leave 50p on the mortgage (apart from anything else the bank will keep the deeds for you in a safe place).

PeteMc

sshnuke wrote:

the tax threshold referred to relates solely to income from property. i.e if you receive only £4000 per year from letting your home that amount is tax free as it is below the threshold. happy to stand corrected on this if i'm wrong.

Unfortunately (for me and many others) you are wrong. The income is added to any other income and you'll pay tax on the whole lot unless it's below the threshold.

PS It appears that the only way you can get the £4250 tax free bit is through the Rent A Room scheme.

garysletters

Pete is right. I'm sorry to say that you are wrong sshnuke.
Any income (rent) earned on a property is classed as unearned income, and is added to your earned income. you do not get a £4K allowance.

you DO get an allowance, as stated by PeteMc, of under £5K for the rent a room scheme. This only applies to rent recieved from a lodger living in your own main residence (i.e. renting a room of your own house to a student perhaps).

Thaylock also raises a good point that you should never fully pay off a mortgage, just bring the amount borrowed down to £1 or something (depending on your mortgage.) This saves paying the mortgage company to look after your deeds, and can also look better on your credit record.
I always remortgage after any discount/offer period ends anyway for another full 25 years.
ALWAYS choose interest only mortgage payments for a buy to let property.
this then is tax deductible.