Renting out my house - advise please!

FulhamAustin

Hi All,

I currently live with my partner and my 6 month old son, in a one bedroom house with a study (that we have a mortgage for). The study is my son's bedroom and it just about does us, but we obviously knew in the future we would need to move somewhere bigger.

We have just found out that my partner is expecting our second baby and now suddenly the need to move is much greater! Unfortunately at the moment we just aren't in a position to save a large enough sum to put down as a deposit to purchase a bigger property (coupled with the additional monthly outlay of a larger mortgage).

We have therefore come to the idea of renting out our property and renting a larger house for a new, larger family :-)

Here therefore comes my question. I've looked into it and by my own admission my financial brain is a bit pants... what are the rules and regulations regarding renting your property? I understand from looking at directgov that you have to work out your net profit, and be taxed accordingly. If less than £2500, then you can ask the nice ta man to adjust your tax code accordingly and you are taxed out of your pay from your employer.

What happens if you just charge rent to the value of your mortgage? And you aren't making any money?

Is the profit you 'gain' based on the previous year or current? Eg, how do you tell the tax man how much you are making in the first year? Or is this just an estimate to begin with?

I would very much appreciate any help you could give me as my head is about to explode with baby talk and landlord talk!!

Many Thanks

nrsql

You can only claim mortgage interest against rental income - you would need to change your mortgage to a buy-to-let or get agreement from the lender. Might want to change to interest only.
Also expenses can be claimed. You will peobably need the rental income to be a fair bit more than the mortgage interest especially if you are taking on another mortgage. Note that you can'tjust increase the mortgage on your current property and use that interest for tax purposes - it would be the mortgage you currently have plus expenses in converting for rental

You will also be going into a risky venture. What would you do if your first tenant stops paying rent - could you afford 4-6 months at least without income - and possible redecoration or worse. Expect a couple of months between tenants. You should expect to build up a fair bit of funds during the first tenancy to tide yourself over. If you aren't able to create that float it's likely to end badly. Don't try to use all the profit to cover the rent on the new house.

I have a feeling that if you can't afford to sell this property and buy another you are unlikely to be able to afford it as a rental.
It could work if you were moving to a smaller property but not to a larger.

G_M

Only the interest you pay on the mortgae is tax deductable. You will also need your mortgage lender's permission, and they may charge a fee for this and/or increase your mortgage rate. Renting is a business, not a domestic arrangement.

You need to learn a LOT about the regulations and practicalities of renting.

Buy this or similar, or borrow from the library.

clutton_2

also read www.landlordzone.co.uk forum it is excellent with several property lawyers posting on there

p00hsticks

FulhamAustin wrote: »

What happens if you just charge rent to the value of your mortgage? And you aren't making any money?

why would you want to do this ?
Once you add in maintenance costs and an allowance for voids, you'll be making a loss.

Unless you in negative equity, why not just sell ?

Nuttyneddy

You don't have to pay tax as you go on rental income (like you would on a salary), so at the end of the tax year you would work out the profit you made, and either pay the tax on it or have your next year's tax code adjusted to take it through your salary.

As others have said, there is a lot more to it than just paying tax on the income however. Make sure you go into it with your eyes open.

And congratulations on the impending arrival