tax on rental income

begbeer

In August when our fixed rate mortgage finishes we will be making a profit on our rented property, I realise will have to pay tax on it after expenses but when do you pay it, our accountant will send in our self asssesment form so will the tax office want the tax straight away or will it be through PAYE. We are talking 2011/12 tax year so self assesment form will not go in until next year.

kingstreet

You will be classed as an employee for your salaried income and will be self-employed for your rental earnings.

Don't forget to register!

You'll be sent a request to complete a self-assessment form at the end of the tax year and you have until 31 October that year to file on paper, or until 31 January of the following year to file online.

Any tax due must be paid by 31 January, so if you leave it til the last minute to file online, you'll be filing and paying at the same time.

In addition, you'll also be asked to pay some of the tax for the following year as an "on account" payment with the balance being paid at the end of July, if anything is payable.

http://www.hmrc.gov.uk/sa/self-emp.htm

loofer

slightly different question from myself but didn't want to start a new thread.

Hopefully completing tomorrow on a BTL property. It's cash purchase.

My wife is unemployed and has no earned income. The rent (c £5k p.a) will be in her name. This will obviously be below the personal tax allowance threshold.

Does she still need to be registered as self employed? Will she have to pay NI contributions on this?

P.S I always though that rental income would be treated as income on investment rather than earned income. Not sure if it makes any difference.

Werdnal

Income from rent is classed as "unearned income" and is accounted for on a self-assessment as income from property. There is a specific section for this on the form, separate from actual earnings income IYSWIM. You don't actually register as self employed.

However, be careful as if the property is owned in joint names, in HMRC's eyes you may both be liable for 50% tax on the rent, regardless of who actually receives the money!

PS - Don't forget you are allowed certain expenses against your rental income, and there is also an allowance for wear and tear on the property - I think its 10%, but still have to do my SA form for this year!

kingstreet

Werdnal wrote: »

Income from rent is classed as "unearned income" and is accounted for on a self-assessment as income from property. There is a specific section for this on the form, separate from actual earnings income IYSWIM. You don't actually register as self employed.

Ah. My mistake. You still need to ensure you tell HMRC you'll need a self assessment form if you don't currently receive one.

taxsaver

There is no need to register as self-employed, but it is necessary to advise HMRC that you will have income for property and they will then include you within the self-assessment system.

There is no NIC payable on investment income.

Although HMRC 'presume' income from jointly owned property of married couples is 50% each, it needn't be the case and a declaration can be made to them varying this.

To the OP, where you have employment income and the profit from property is less than £2,500pa then you can have your code adjusted so that you pay the tax through PAYE.

prudryden

Taxsaver: If the property is in a single name, but the tenants pay the rental income by standing order into a joint bank account, can the rental income be allocated to the joint parties 50/50?

clairet707

begbeer wrote: »

In August when our fixed rate mortgage finishes we will be making a profit on our rented property, I realise will have to pay tax on it after expenses but when do you pay it, our accountant will send in our self asssesment form so will the tax office want the tax straight away or will it be through PAYE. We are talking 2011/12 tax year so self assesment form will not go in until next year.

Sorry am not sure Im understanding correctly? Are you already renting this house out? Or is it to be rented out from August?

If you are already renting it out then you need to let the tax office know and fill in a tax return from when you started renting it out..

Bear in mind that only the interest part of your mortgage is counted for tax purposes and there are quite a few expenses which can be used to offset against the rental income..

begbeer

Have been renting it out since 2006, reason being we bought the house my mother was renting as farmer needed the money after telling her it was hers for life, got an enormous mortgage to do so and we are slowly paying it off. she pays us the same rent she was paying the farmer but we have been subsidiing it up to now. with our fixed rate now up we are as I said going to make a profit, have some losses to carry forward so not to much this year. We already do self assesement forms each year, but what I wanted to know is when I pay the extra tax, seems like it will be in January 2013, is this correct. as we are talking about 2011/12 tax year.

taxsaver

begbeer wrote: »

what I wanted to know is when I pay the extra tax, seems like it will be in January 2013, is this correct. as we are talking about 2011/12 tax year.

Yes, that is correct.

taxsaver

prudryden wrote: »

Taxsaver: If the property is in a single name, but the tenants pay the rental income by standing order into a joint bank account, can the rental income be allocated to the joint parties 50/50?

I never say never, but it's pretty unlikely and if it were to be possible would need some pretty well drawn up trust deeds I'd say and even then HMRC might need quite a bit of convincing that it isn't simply a contrivance.