tax doesnt need to be taxing on income from my flat??

thamesmatt

Can anyone shed any light on my situation with regard to tax, declaration an income from my flat.

To cut a long story short.

1. split with my ex bought a flat in the Feb and lived in from April to January as my primary residence.

2. I then moved in with my girlfriend (now wife) in the feb and rented the flat out.

3. The mortage payments (interest only) were greater than the rent, agency fees service fees etc.. so the flat cost me about £50 a month for 2 years

4. Have just switched mortgages and for the first time I will be making about £50 a month on the rent minus the agency service fees etc...

Do I need to declare this small sum, have I sinned against the taxman for the last 2 years? Can I offset anything as it was my permanent residence?

In most areas of life I am quite organised but I have done the renting equivalent of not opening the bank statements when it comes to the flat!

Also the flat has gone up about £25k in the 3 years I have had it. Does this have a bearing on it other than I get a better interest rate??

Matt

Rimo2021

Yes you should declare it. Wouldn't worry too much about not declaring before as you wouldn't have tax to pay.

Pity you didn't though because you could have declared the £50 per month loss and carried it forward to set against the profit you are now making

Rimo2021

oh and don't forget to keep evidence of it having been your main residence at one time as (under current rules) you will then get capital gains relief on any profit for not only the time it was your PPR but also the last 3 years of ownership when you come to sell....

thamesmatt

next question, do you know where I have to declare it? I've always been a PAYE man so never paid any attention whatsoever to tax!

Rimo2021

thamesmatt wrote: »

next question, do you know where I have to declare it? I've always been a PAYE man so never paid any attention whatsoever to tax!

Just ring your local tax office (you can find out which is yours from http://www.hmrc.gov.uk ) and tell them you've got some income from property - they'll send you the relevant self-assessment forms.

Don't forget to brush up on all the expenses you can deduct from the profit - 10% of the total rent as wear & tear, agency fees, mileage if you do any in relation to the property letting, advertising, repair costs etc..

There is also the issue of PPR, if you moved out less than 2 years ago I think you can still register with inspector of taxes and then vary your PPR at will between your 2 properties, although I presume as you are married you won't be able to have separate PPRs so might not be of great use to you..

ajaxgeezer

Rimo2021 wrote: »

Pity you didn't though because you could have declared the £50 per month loss and carried it forward to set against the profit you are now making

....really? Is this true? I was under the impression that every income tax year was seperate, and therefore any losses couldn't be offset against future years' gains.

As someone who has one BTL making a small monthly loss, I'd love to get this confirmed?

cheers,
Martin

sleepymans

Rimo2021 wrote: »

Don't forget to brush up on all the expenses you can deduct from the profit - 10% of the total rent as wear & tear, agency fees, mileage if you do any in relation to the property letting, advertising, repair costs etc..

I dont think you can claim 10% wear and tear unless its a furnished let.
??
Sleepymans

ajaxgeezer

To claim the 10% wear/tear it has to be fully furnished.

seven-day-weekend

I rented a flat out for a few years at a loss and the taxman told me that if I started to make a profit, I could set off the previous year's loss against the profit, thereby reducing the profit.

I'm sure I was told you could do this for up to six years worth of losses.

That's why it's worth sending a tax return in even for a loss.

Never made a profit though, so never actually carried the loss forward!!

seven-day-weekend

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

Also see thie extract from the link below:

http://www.property-tax-portal.co.uk/sample_newsletter.shtml

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SHOULD I DECLARE MY RENTAL LOSSES?

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Q. Last year I purchased two investment properties. However I am currently making a loss on them as I have a low yield and the expenses are greater than the income. Should I declare this loss to the Inland Revenue?

What happens if I don't declare the loss?

Ian says:

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You have an obligation to report a new source of income to the Inland Revenue by 6 October following the year in which the source of income first arose.

Assuming that the income first arose in 2003/04, you have until 6 October 2004 to report this source of income to the Revenue and until 31 January 2005 to file a tax return showing the income and expenditure for the year.

It is always a good idea to declare the loss as this can be carried forward and used against future profits of the rental 'business', whether this be the same or different properties.

If you do not declare the loss and start making profits several years later and then declare the profit, you will lose out on being able to offset the losses against the profits and hence will pay more tax.

Also, if the Revenue discovers that you have had rental income then you may find it difficult to prove several years later that the expenses were as high as you say they are unless you have kept full records.

Therefore you may end up paying tax, interest and penalties on a profit that you never incurred.

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ajaxgeezer

Excellent info Rimo, and thank you very much seven-day for the taking the trouble to list the sources.

Hats off to the both of you. First pint's on me!