Tax query re Rental property

woza_2

Hello all,

First post so please be nice

Without boring you all with the gory details, i bought a property a couple of years ago and have since left the property and now rent it out.

The rental income does not cover the total mortgage cost and myself and ex partner have to contribute to the mortgage to top it up each month.

Am i correct in thinking that i am liable to some form of tax saving?

Thanks in advance,

Warren.

TrickyDicky101

You can only offset the mortgage interest charges (and not any capital repayment element) against the rental income so unless you are on an interest-only mortgage then a proportion of your monthly repayments will be to capital (and thus not allowed).

So, are you on a repayment mortgage? The rental income/expenses operate as a self-contained element of any tax return - if you end up making a loss you wouldn't for example be allowed to offset the loss against your income from employment elsewhere.

BitterAndTwisted

Yep, all of the rent is regarded as taxable income regardless of whether you are making a profit by renting the property out or not.

woza_2

yes - i'm on a repayment mortgage, so i'm better off not doing anything then?

BitterAndTwisted

It depends upon whether this "not doing anything" includes declaring the rental-income on your tax-return or not.

terryw

You must let HMRC know about this new source of income and declare the net profit at the end of each tax year. From what you have said it looks as though there will be a profit. If there is actually a loss this can be carried forward and off-set against profits in future years.

woza_2

terryw wrote: »

You must let HMRC know about this new source of income and declare the net profit at the end of each tax year. From what you have said it looks as though there will be a profit. If there is actually a loss this can be carried forward and off-set against profits in future years.

no profit - as i have to top up the mortgage each month...

terryw

Woza,

You can't set the whole mortgage payment against the letting income. Only the interest.

chudies

1. you should inform HMRC, so they send you a self-assessment form
2. retain all receipts of costs (interest on mortgage, service charges, insurance, repairs, your travel to maintain - basically anything)
3. calcualte income
4. income - expenses = net profit/loss. in your case loss
5. show loss on the self-assessment form
6. keep collecting for as long as you rent it out
7. if you do start making a profit (lower interest rates on your mortgage, increased rent), show the loss you have been making for the previous 6 years
This way, you should not be caught out by HMRC (declared income) and are not taxed on any income (as you are making a loss year in, year out)

tbs624

Go onto to the HMRC website and look for the PIM ( Property Income Manual ) plus seek out SA105 and related help pages. It is all quite straightforward.

Have you also sought Consent to Let from your Lender, if this property was originally bought on a resi mortgage?

Are you letting at the local market rate?

woza_2

tbs624 wrote: »

Go onto to the HMRC website and look for the PIM ( Property Income Manual ) plus seek out SA105 and related help pages. It is all quite straightforward.

Have you also sought Consent to Let from your Lender, if this property was originally bought on a resi mortgage?

Are you letting at the local market rate?

yes i have consent to let and i think its at the local rate.....!

Thanks for all your helps chaps.