Paying tax on rental income

trippy

We relocated due to work and rent out our only property whilst renting another in a different area.

Our mortgage interest payment is £375 (though we pay £675)
We get £775 in rent
We pay £1,050 to rent the house we live in.

What exactly are we expected to pay tax on? We are not running a property business. We are not making any money. The property value has decreased since renting it out and we have tried selling it. Could I ask an accountant to find any financial gain that requires taxing and submit that as part of our tax return?

I don't understand why people who rent out a room get £4,750 rental income tax-free, yet people who rent out their only property and pay to live elsewhere don't get any kind of allowance at all.

I'm also unclear about what to put on our tax return. Do we just halve everything and submit two separate returns as the property is jointly owned or can we put it all on one return in one name and use up unused tax allowance for a particular tax year?

Lokolo

There are taxable allowances. So if its furnished you can have the usage of that as taxable allowance. Any other business use (so things) so LA fees etc.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027

ceeforcat

Property jointly owned so income, on the assumption that you are husband and wife, is also joint.

So far we have:

Income: £9300

Expenses:

Interest £4500

If the house is furnished, wear and tear allowance is claimable - usually 10% of gross rent less charges normally borne by tenant but paid by landlord e.g. rates e.g. if rates are £900, W & T would be £840.

The rates charge of £900.

This leaves us with a profit so far of:

9300-4500-840-900= £3060 or £1530 each.

Any other expenses - repairs, agents fees?

00ec25

trippy wrote: »

We relocated due to work and rent out our only property whilst renting another in a different area.

Our mortgage interest payment is £375 eligible cost (though we pay £675) irrelevant
We get £775 in rent gross taxable income
We pay £1,050 to rent the house we live in. seriously irrelevant

What exactly are we expected to pay tax on?
the NET PROFIT which is gross rental income minus eligible costs
So what research have you done to educate yourself??????
basics here:
http://www.direct.gov.uk/en/AdvancedSearch/Searchresults/index.htm?fullText=rental+income

more advannced stuff here:
http://www.hmrc.gov.uk/manuals/pimmanual/index.htm

We are not running a property business.
you absolutely ARE RUNNING A BUSINESS, if you carry on with your current attitude you risk making serious mistakes becuase HMRC consider you as a business
We are not making any money.
Yes your are - how you spend your income (paying rent on another property to live in) is utterly irrelevant to how much money you earn in rental income . Analogy - I have to buy food to eat, I can't offset that cost against the fact I my earn my income as a cook

The property value has decreased since renting it out and we have tried selling it. Could I ask an accountant to find any financial gain that requires taxing and submit that as part of our tax return?
No - losses on property renatal businesses can only be offset against furture profits from property businesses.

I don't understand why people who rent out a room get £4,750 rental income tax-free, yet people who rent out their only property and pay to live elsewhere don't get any kind of allowance at all.
The RAR allowance is given because it is more cost effective for HMRC to give a tax free allowance than have to process tax returns from thousands of people claiming tin pot sums as the share of costs offset against the income from their lodger

as above, how you choose to spend your money has nothing to do with how much tax you have to pay on your earnings

you really have not grasped the basics, if you really want to DIY then you MUST learn from the 2 links above
alternatively ifthis is your first tax return then you'd be best paying an accountant to do it for you and learn off them what is and is not allowable then you can DIY next year

trippy wrote: »

I'm also unclear about what to put on our tax return. Do we just halve everything and submit two separate returns as the property is jointly owned or can we put it all on one return in one name and use up unused tax allowance for a particular tax year?

we cannot answer this question unless you explain how the property is owned as the rules depends on whetehr you are married or not... so please answer the following
1. are you married?
2. is the property owned as joint tenant with your partner and therefore as you imply 50/50 shares, but the fact you may or may not be married becomes extremely relevant in determining the actual income division, or
3. is the property owned as a tenant in common, if so what are the % splits - as marriage again makes a huge differnece to your options, eg you may be TIC with 50/50 split

trippy

Thanks. Though I don't like the tone of 00ec25's reply! I am NOT an idiot. I have done plenty of research and am just trying to clarify a few points. I was questioning why someone can rent out a room and get a tax free allowance, but someone renting out their own home (not a BTL or a second home) does not. I am not running a business, I have moved house. I am not making any money, I have less money than before I moved and would dearly love to sell the house and buy one where we now live.

ceeforcat Yes, we are married. The house is rented out unfurnished, though it has curtains, white goods and wardrobes (not fitted) in two of the bedrooms. I have a list of costs for the first year, ie agents fees, cost of getting EPC and gas safety cert, new fence (while tenants were in). They come to £1,696.

Thanks for your help.

00ec25

sorry but this question gets asked nearly every week from people who raise specific questions about individual items but rapidly reveal that they have no idea about how rental tax works - you asked "what exactly will I pay tax on" - that comes across as I have no idea what I'm doing and want someone else to spoon feed the answer to me

although you are what is called an "accidental LL" as I said HMRC very much see you as a business and bleating that you are not will not get you anywhere. You have untaxed income, the fact you spend it on living eklsewhere is not allowed against your tax on that income . HMRC can process claims for let property relatively efficiently whereas for lodgers they could have to spend lots of time challenging how the LL has split the costs , eg share of utility bill split 50/50 because there is the LL and one lodger or split 60/40 because the lodger's room is bigger??? So much easier for HMRC to give a reasonably "high" allownce (it has not increased for years!) and avoid all that fuss. But for a rented property, agreeing the basis of apportionment is not required so its quick and easy for them to receive a self assessment tax return and the accompanying payment

In your case...
as a married couple in (I assume) a Joint Tenancy you are required to split the income 50/50. You have no other option - if you held it as TIC you would have other options

so you each have to inform your respective tax offices that you have untaxed rental income. HMRC will inform you iof you need to do a ful tax return or can settle via letter.

your liability is rental income 9600/2 minus interest 4500/2 (assuming its a joint mortgage) minus other eligible costs 1696/2 (which you have correctly identified)
the house is not sufficiently furnished to allow you to claim the wear and tear allowance.

Thus as far as HMRC are concerned you are certainly "making money", as you each have a taxable net profit of 1,702.

Assuming you are both basic rate taxpayer you each owe HMRC £340.40 in tax which will need to be paid by 31 Jan 2014 - assuming you started letting after April 2012. If you started before then, some of it falls in tax year 11/12 so will be due by 31 Jan 2013

CLAPTON

trippy wrote: »

I am NOT an idiot.

the rent a room scheme allows 4,250 tax free but no other expenses

you can get allowances of 4,500 in interest plus 1696 other expenses making your tax free allowances 6,196

trippy

00ec25 wrote: »

you asked "what exactly will I pay tax on" - that comes across as I have no idea what I'm doing and want someone else to spoon feed the answer to me

Actually I asked 'what exactly are we expected to pay tax on?' which is because I am disputing that we are making any money and should be paying tax on what HMRC deems to be profit.

Accidental landlord - yes, money making business - no. Whether or not HMRC sees me as a business is not what I'm disputing, it's whether or not I am a business in true terms. Like I said, we have less money at the end of the month due to the increased cost of living in a family home.

The fact that we get rent on one property and use this to pay for rent on another should be taken into account. We are renting our only property and are renting elsewhere because we can't sell it and we had to move for my husband to be able to get a job. The fact that HMRC sees that we have additional income that requires taxing is not a true reflection of the situation.

grey_gym_sock

never mind "in true terms" ... in terms of the law of taxation, you are running a business ... you may not like it, but that's how it is.

00ec25

trippy wrote: »

The fact that we get rent on one property and use this to pay for rent on another should be taken into account..

WHY?on what basis should the taxpayer subsidise your choice in life to live somewhere else. Do you think second home owners should have theirs free of any council tax ?

trippy wrote: »

We are renting our only property and are renting elsewhere because we can't sell it and we had to move for my husband to be able to get a job. .

oh yes the usual reason - we don't want to sell for less than we think its worth so we haven't been able to sell it and now feel hard done by because we can't realise the nice fat profit we thought we would get

as said tax law is tax law , get over it. the income is being earned by your business, if you spend it on renting somewhere else then you are taking money out of the business, AKA withdrawing a salary - salaries are subject to income tax

don't get me wrong, I am fully sympathetic to your plight as I have had to rent for work twice in the last 18 months and the decrease in living standards is unpleasant. But I choose to do that and luckily have now returned home so was justified in my chouice, I did not expect the tax payer to subsidise me however.

i have given you the precise figures you asked for in your Op (based on the amonuts you have declared) at least have the decency to acknowldge that please