Renting out house with no mortgage!

moneysaymoneydo

Hi Can anyone advise please i have a 2 bed house mortgage almost paid off and will come Aug be renting out, i have not set the wheels in motion but when discussing in the pub the other night i was advised to not pay off my mortgage as i would need to pay capital gains tax? is this right and also when i do rent out i have to pay tax on rental income also? can anyone give me a quick lowdown on this thanks in advance very much appreciated!!!

HappyMJ

The interest on the mortgage is an expense you can use to offset the tax due on the income you get so if you pay it off you have less expenses to claim. If it's almost paid off then I doubt it will make much of a difference anyway.

FTBFun

You'll need to pay tax on the rental income. You can claim expenses including mortgage interest as HappyMJ says.

You will need to register for self assessment if you don't currently file a tax return. This link gives you the various details:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435

Re capital gains tax - when you come to sell it as you have lived in the property as your principle residence you will be able to exempt some of any capital gain from tax, and additionally you'll be able to use something called "lettings relief". It's probably best you speak to an accountant nearer the time you eventually come to sale.

Mrs_Z

Hello there,
As far as I'm aware, you'll be liable for capital gains tax only when you sell the property but your rental income will be subject to income tax. Check out Inland Revenue web-site:

http://www.hmrc.gov.uk/index.htm

Lots of useful info there. And as already mentioned, there a number of allowable expenses; mortgage interest being one that you are allowed to deduct.

For newbie landlords I also recommend the residential landlord site - plenty of info there:

http://www.residentiallandlord.co.uk/

Thrugelmir

moneysaymoneydo wrote: »

Hi Can anyone advise please i have a 2 bed house mortgage almost paid off and will come Aug be renting out, i have not set the wheels in motion but when discussing in the pub the other night i was advised to not pay off my mortgage as i would need to pay capital gains tax? is this right and also when i do rent out i have to pay tax on rental income also? can anyone give me a quick lowdown on this thanks in advance very much appreciated!!!

If you are unaware of the taxation issues. Are you fully prepared to become a landlord and all that it entails?

Gwhiz

Mortgage or no mortgage will have ZERO bearing on your CGT situation.

It's all to do with INCOME tax.

dorset_nurse

Have you checked that you are making a profit after expenses when you let it out. If you have a lot of money in the house you may be better off selling it and saving the cash.

Thrugelmir

dorset_nurse wrote: »

Have you checked that you are making a profit after expenses when you let it out. If you have a lot of money in the house you may be better off selling it and saving the cash.

With no mortgage to service. There will be a profit providing the property is let and the tenant pays the rent. The question really is could a better return be made elsewhere with the "cash".

G_M

moneysaymoneydo wrote: »

Hi Can anyone advise please i have a 2 bed house mortgage almost paid off and will come Aug be renting out, i have not set the wheels in motion but when discussing in the pub the other night i was advised to not pay off my mortgage as i would need to pay capital gains tax? is this right and also when i do rent out i have to pay tax on rental income also? can anyone give me a quick lowdown on this thanks in advance very much appreciated!!!

This is not the place to get advice on a serious business/financial decision with legal implications.

Start here instead.

dorset_nurse

Thrugelmir wrote: »

With no mortgage to service. There will be a profit providing the property is let and the tenant pays the rent. The question really is could a better return be made elsewhere with the "cash".

Not if the house is worth so much that the money would make more interest sat in a bank...

moneysaymoneydo

Many thanks to you all for your advice i am at the dilemma what do i do i did contemplate selling but unsure if i would be dipping into it if it was in the savings account i see it as my pension bought if for £45,000 in 2002 worth £140000 in todays market and my mortgage is £18,400 as it stands it would rent for £700 a month just wasnt sure of legalities!