Renting house and disappearing

The_Viking_3

Hi

I'm quitting work to do some travelling and am renting my house out. I'm doing this privately to a friend and have not told the Inland Revenue - I really need the rental income, so can't afford to lose 22% in tax - I'm only getting £400/month in rent.

My question is, will the IR get wind that I've upped sticks and left and present me with a tax bill for the rental income whilst I'm away? Allied to this, when i get back in a year's time, I'll approach them about getting a tax rebate for the money i have earned before I leave, as I'll have paid income tax at the full rate since April. In that case, will they know I've made money from rent that is undeclared and insist that is taken into account when they refund me some overpaid income tax? I suppose what I'm asking is, how clued up are the IR when it comes to knowing about personal circumstances? Will it be safe and easy to omit some crucial info? We're not talking vast sums here.

Not sure if this question should be here or in the tax bits.

PrincessG_2

I'd be more worried about your mortgage lender and insurance. Our mortgage contract clearly states that we will be the sole occupiers and it will be our main residence. I think there is something similar for insurance.

regularsaver1

if there is a mortgage then you can deduct the interest . and also they allow for certain improvements

even if it is a friend, still have a tenancy agreement.

and if you do have a mortgage, you must get their permission

The_Viking_3

Yeah, it's weird - my insurance company didn't seem bothered and said I was covered anyway - which I doubt - and the mortgage company said what they don't know won't hurt them and advised me to keep quiet about it. Very odd.

I'm getting a lump sum of £20k and was going to use about half this to pay a bit of the mortgage off, meaning I'd make more profit on the rent, which'd help fund my trip and give me an income.

Given that you can deduct mortgage interest from tax due on the the rental income, is it a good idea to pay some of the mortgage off? It seems better to keep the money in a high interest account, I think.

Tax makes my head hurt!

regularsaver1

very off about your insurance as at the moment it would be based on you living there, residential, rather than a tenant. often accidental damage applies, as you would have this kind of thing in your tenancy agreement.

have you done a tenancy agreement and using an agent?

rizla01

Hi,

Have a good trip. Hope it all goes well for you.

My only thoughts are:-

How will the IR know how much you are charging for rent and how much is your mate charging YOU (able to be offset against tax) for looking after your house in return?

Just make sure that payments to you aren't traceable IE not paid into your bank A/C and not paid out of his bank A/C.

I can't see how you can get caught out unless the house burns down and your Mortgage Co try (As they will) to get out of paying you.

Also, be wary of your 'Mate' sub-letting!

Then again, why tell the IR ANYTHING. just disappear, surely.

Why not pretend that you are living in your house all the while? Who'd know?

silvercar

What happens to the post while you are away?

You need a tenancy agreement so you can give notice to quit before you come back.

As you get tax relief on your mortgage interest you might as well declare it. as your away for less than 3 years it won't affect CGT.

movingforward2010

how the IR going to know anyway??

movieman

Didn't the Inland Revenue set up a 'shop a landlord' phone line a while back?

Certainly with Gordon Brown spending far more than he's collecting in taxes, landlord tax evasion must be a glaring opportunity for him to raise more money without upsetting too many people. Why should they get away without paying tax when their tenants are probably paying through the nose because they have real jobs?

researcher

The only 2 people I know who have let their properties to friend when they travelled had REALLY bad experiences - both of which ended in court, and cost them both loads of money!

You will not like my advice, but it is this:
Get agreement from your mortgage company.
Sort out your insurance.
Rent out the property on a proper basis, with lease, at market rate handled by professionals.
Inform IRS and pay (or have returned) the correct amount of tax.

In the end analysis this is your main asset (?) and you have to protect it.

Suewre

The_Viking wrote:

Hi

I really need the rental income, so can't afford to lose 22% in tax - I'm only getting £400/month in rent.

It is 40% tax for rental income - it is classed as unearned income.