Renting - is this right?

Lifeisbutadream

A friend of mine wants to move out of her house (owned/mortgaged) and move into rented (long story, involving an abusive ex-partner)

When she got an estate agent round to value her house, he told her that she would need to pay tax on the rent she would get from her own house - is this right? she would actually be paying more to rent somewhere than her own mortgage anyway, plus agency fees etc. so it would actually cost her a fortune if this is correct.

I would appreciate some advice if anyone knows the legallities here?

Thanks..

LandyAndy

If she is renting out her original house then, yes, tax will be payable on her profit from renting out. Just the same as any other business.

Lifeisbutadream

LandyAndy wrote: »

If she is renting out her original house then, yes, tax will be payable on her profit from renting out. Just the same as any other business.

But it isnt a 'business' - she needs to live somewhere. She cant sell as she is in negative equity and she has to move out as she is being stalked by her ex.

Renting elsewhere will cost more than she would get for rent.

If you were running a business at a loss, you would not pay tax, so if it actually is like a 'business' then how come she would have to pay tax?

clutton_2

thats why "", tax will be payable on her profit from renting out" - if she does not make a profit she wont pay tax

not_tonight_josephine_2

Lifeisbutadream wrote: »

But it isnt a 'business' - she needs to live somewhere. She cant sell as she is in negative equity and she has to move out as she is being stalked by her ex.

Renting elsewhere will cost more than she would get for rent.

If you were running a business at a loss, you would not pay tax, so if it actually is like a 'business' then how come she would have to pay tax?

Because the rent on her private home is not a cost of her business, it's part of her personal living expenses.

Lifeisbutadream

clutton wrote: »

thats why "", tax will be payable on her profit from renting out" - if she does not make a profit she wont pay tax

But she was told that she couldnt claim the rent on the house she was going to live on, against it, by the estate agent - that was what I was trying to clarify.

Obviously it is a massive difference (i.e. paying tax or not paying tax) and a risk that she cant afford to take - its bad enough being stalked, without being forced out of your own home and having to pay HMRC a chunk to boot!

Jowo_2

Get her to contact Shelter or Women's Aid for advice on how to deal with her accommodation issues and abusive ex partner who will invariably simply trace where she has moved to and she'll be locked into an expensive rental contract for at least 6 months.

Lifeisbutadream

not_tonight_josephine wrote: »

Because the rent on her private home is not a cost of her business, it's part of her personal living expenses.

I am not saying it is wrong, just trying to clarify, but that seems a bit strange - it isnt like renting out a mortgaged home whilst having another mortgage for instance - it isnt like she is gaining from anything.

Jowo_2

Lifeisbutadream wrote: »

But she was told that she couldnt claim the rent on the house she was going to live on, against it, by the estate agent - that was what I was trying to clarify.

The landlordzone website has a section on tax which details the legitimate business expenses she can deduct from the profit for the purposes of tax. This includes things like repairs, agency fees, insurance, gas safety certificate and so forth.

She cannot deduct expenses unconnected with that business transaction, such as per personal living expenses. The fact that the origins of letting out her property is a social/relationship problem has absolutely no influence on this.

She also needs to consider how she is going to afford it if she ends up with a non-paying tenant or a long void.

Perhaps she's better off getting an injunction against the ex and having a friend move into the current property with her. It would also be a shame for tenants to be caught up in the landlord's personal problems, too.

Cannon_Fodder

Lifeisbutadream wrote: »

But it isnt a 'business'..

Oh, yes it is! She might not have planned it as a business, but being a landlord has commercial, legal and financial obligations.

Her choice to rent somewhere else has no bearing on the choice to rent out a property. (she could go home to the parents/lodge with friends/buy another property if she had the cash to convert first mortgage into BTL and put a deposit on new place, a host of choices..)

Lifeisbutadream wrote: »

Renting elsewhere will cost more than she would get for rent.

How can it cost more elsewhere? Assuming she is charging the going rate for the type of property, the same type of property that she moves to will be much the same rate round the corner, a few streets away, or whatever.

If she chooses not to charge the going rate, that is a business decision she may come to regret.


Has she tried asking her Lender if they will port the mortgage to a property of the same value elsewhere ? Sometimes, they don't mind if the end result of her negative equity position comes out the same...

She needs to tackle the serious element of stalking/abuse properly. Get him charged for it and locked up, if need be. Who would want to be the tenant when the abusive ex has been knocking on windows at 3am for a couple of weeks? Its not going to be a solution, imo.

Jowo_2

Lifeisbutadream wrote: »

I am not saying it is wrong, just trying to clarify, but that seems a bit strange - it isnt like renting out a mortgaged home whilst having another mortgage for instance - it isnt like she is gaining from anything.

This is a tax system and it does not have social/welfare issues that dictate the applicability of tax policies.

Letting out property is a business. Tax is payable on profits (income less legitimate business expenses associated with it). The business of letting is entirely divorced from the landlord's personal expenses (so this includes their own private rental costs).

It may not be 'fair' but the tax system is rather unemotionally applied with a fixed set of rules and a certain way a tax return is submitted.

Get her to contact Womens' Aid for advice and support. They can tell her the legal and accommodation solutions. They know that abusive partners are vindictive and frequently try to control their social life and economically disadvantage them. What your friend needs to do is tackle the root cause and find the best way to keep herself safe and WA are experts in this field. Exposing herself to extra financial burden may not help matters and she could end up losing her home if the let doesn't work out.