Tax on Rental Income not Covering the Mortgage

wehalf

Hello, I increased my mortgage to buy a small flat to rent out. The rental income does not cover the mortgage increase so there is no actual income from the flat. Do I need to fill out a self assessment form and tay tax for this? I have heard of form P810. Is this all I need to fill in and, if so, is there a deadline for sending the form?

BoGoF

What is the gross rental income?

What is the net profit bearing in mind you can only claim the relevant portion of the mortgage interest? If you are on a repayment mortgage you cannot claim any capital repaid.

wehalf

In theory, the profit should be about £4,000 pa but that doesn't account for empty periods. If it was occupied all year, I would still be making a loss on the mortgage repayments.

System

Read BoGoF above. You can only take into account the portion of the INTEREST to do with the purchase of the flat. Not the whole repayment or the whole interest.

wehalf

Sorry, I'm new to this self assessment thing. I'm not understanding the idea of a claim. I understand the idea of tax relief on mortgage interest but should I still be sending HMRC a percentage of my rental income?

BoGoF

Ok, first things first.....when did the rental start?

wehalf

Someone moved in in July then left in December.

BoGoF

Right so you don't need to worry about doing a Tax Return for 2010-11 if the letting didn't start till 2011-12 tax year.

My suggestion is that after end of this tax year (5/4/12) you write to HMRC with details of the rents received and expenses claimed, inlcuding the allowable portion of your mortgage interest.

wehalf

Excellent! So I've got a stay of excecution. I should be able to get my head round all the fiddly stuff by then. Thank you so much!

Pennywise

Don't forget you can only claim interest for periods whilst it's let or periods between tenants when its not being used for anything else - i.e. not for the initial period if you're doing it up in preparation for renting, not when it's used for another purpose (i.e. you or your family/friends living in it) and not after the final tenant has left in the period prior to its' sale.

It's not as simple as claiming the mortgage interest for the entire year, unless it's been let all year or the un-let periods are simply short periods between tenants.