Letting out only property - tax implications?

Jet

I know of someone who owns a property and rents it out.

He lives on a boat the rest of the time or stays with his girlfriend. His post is re-directed from the rented property to his girlfriends address.

He has a large mortgage on the property and the rent only covers the mortgage and he makes very little "profit".

Should there be any tax implications and should he have a "buy to let" mortgage (I know he has a "normal" mortgage)?

tom188

If some of the money is going towards paying off the mortgage then this is profit and needs to be declared and taxed at his income bracket - he is after all getting profit from a bigger stake in his house. If it is interest only and nothing is left over then this is not profit and this is deductable, but the income still needs to be declared. There are allowable expenses re maintenance as well.

Long term there may also be issues regarding capital gains tax.

Someone who is more knowledgable than me in this field will no doubt be along soon to explain.

He should have sought permission from his lender if he is letting it out as it is their house too. To not do so is undoubtable a breach of their agreement.

Try the Houses board as well for information.

roger56

It's best to advice the taxman of a change of circumstance.
For the part of the rent payment that covers mortgage interest, I don't think any tax is paid. For the remainder, it would be taxed at a rate depending
on the persons total income less allowances.

For the mortgage read the Ts + Cs. Most require you to inform of rental.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814

Jet

I do know his mortgage is interest only.

I'll post on the houses board too.

Thanks.

Hoddie_2

I do know his mortgage is interest only.

Just to clarify, many people believe an endowment mortgage is 'interest only' but it's actually quite the reverse. There will be no tax relief due if the mortgage is an endowment mortgage.

Jet

Hoddie wrote:

Just to clarify, many people believe an endowment mortgage is 'interest only' but it's actually quite the reverse. There will be no tax relief due if the mortgage is an endowment mortgage.

He had endowment policies to run alongside the mortgage but cashed them in a few years ago. I presume that means he still has an "endowment" mortgage even if he doesn't have the endowments?

maypole

Another thing to consider is, he should have permission from his mortgage company to let the house. Apparantly, if they allow you to rent it out then the rent should cover your mortgage payments. Check it out.

If he is a landlord he should be declaring this to the Inland revenue whether he makes a profit or not. I read this in the observer or guardian money section a few weeks ago.

Hoddie_2

I presume that means he still has an "endowment" mortgage even if he doesn't have the endowments?

I'm honestly unsure how it works, never had a mortgage myself. However, I do believe that all mortgage providers issue an annual statement advising how much of the monthly payments went towards the capital and how much went towards the interest (which is a legitimate expense). Is there a mortgage board on here? They'll probably be best placed to answer this question.