Buy to let advice please

Red2008

We are considering letting our house and changing our mortgage to a buy-to-let. I have just been reading an article....

"You will, however, be able to offset mortgage interest payments, ...... against the taxable rental income."

offset mortgage interest payments, what exactly does this mean.

Thanks

00ec25

you can only claim interest, not capital, element of (repayment) mortgage

you need to learn the rules - here they are...
http://www.hmrc.gov.uk/manuals/pimmanual/index.htm

if you don't understand even the basics of how to calculate your net rental profit liable to income tax then you would be best off using an accountant for the first year


there are many other things you clelary need to get up to speend with - search for the post by user GM which lists these - or buy a book on your legal responsibilites as a LL

Werdnal

Before you go any further, this is the GM post referred to above.

http://forums.moneysavingexpert.com/showpost.php?p=3477037&postcount=28

If you are asking such a basic question, it is clear you have alot to learn about letting, your responsibilities in becoming a LL and the costs and obligations involved. Read the link and all the links it also contains, then if you need any further advice or have any specific questions, come back and ask again.

kingstreet

Red2008 wrote: »

We are considering letting our house and changing our mortgage to a buy-to-let. I have just been reading an article....

"You will, however, be able to offset mortgage interest payments, ...... against the taxable rental income."

offset mortgage interest payments, what exactly does this mean

You don't need to change to a buy to let. Asking your current lender for consent to let will normally be sufficient. There may be an accompanying increase in rate, a fee, or both.

Offsetting expenses against income is a normal function of being in business, which you are going to be.

If you earn £500 and it costs you £100 to earn that income, you take the £100 away from the £500 and you then have £400 which is taxable. This is how it is with mortgage interest payments. Take the interest and any other allowable expenses away from the rent you receive and whatever is left over is your taxable income. The capital element of any payment on a repayment mortgage is not allowable.

As mentioned, you need to spend some time learning about the responsibilities of being a landlord and running a business.

Notmyrealname

Red2008 wrote: »

We are considering letting our house and changing our mortgage to a buy-to-let. I have just been reading an article....

"You will, however, be able to offset mortgage interest payments, ...... against the taxable rental income."

offset mortgage interest payments, what exactly does this mean.

Thanks

In simple terms.

Assuming its on a repayment...

£500 a month mortgage payment.
£200 is interest, £300 is capital.

You can only claim the £200 as a deductible expense, not the full £500.

So over a year say you charge £6000 rent. You have £6000 of mortgage payments but only the interest, £1200, is claimable.
You have other expenses totalling £500 (insurance, gas check etc).

You have made a profit of £4300 (£6000 - (£1200+£500)) even though you have actually forked out £6500 in mortgage and expenses.

You will be taxed on that £4300 if you already have other income taking you over the tax threshold and that £4300 is also classed as income for benefits purposes so it would affect tax credits, any income based JSA or ESA you get etc.

Red2008

Werdnal wrote: »

Before you go any further, this is the GM post referred to above.

http://forums.moneysavingexpert.com/showpost.php?p=3477037&postcount=28

Thanks for that, but I'm struggling to find the post that you are referring to. The link doesn't seem to work.

What is the title of the thread, maybe I can search on that.

Sarah

SuzieSue

Try this link:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

G_M

Here is my link.