Renting a property out

chomper22

Can anyone help give some guidance? I dont really understand the tax laws around renting a house out. Basically, I have a small house with an outstanding mortgage. Having just had twins, I need somewhere bigger. I am considering renting my current house out and getting a let to buy mortgage to get a new place. My current mortgage provider is ok with this, and has sent me all the details should I wish to rent out.

The thing I can't get my head around is the taxation on the rental income. It looks likely that the rent wont cover the current mortgage anyway, will be a shortfall of about £50 - £60 a month which I will have to cover. What else do I need to pay as a landlord (I know I need buildings insurance). Do I need to pay utilities or does that usually get covered by tenant?

How do I therefore work out whether I need to pay income tax, and if so, how much? How can I then consider claiming expenses? What classes as expenses? soooo confused and babybrain isnt helping!

Thanks in advance

kingstreet

You pay tax on the rent you have left after offsetting allowable expenses. These are shown here;-

http://www.which.co.uk/money/tax/guides/tax-on-property-and-rental-income/allowable-expenses-and-allowances/

Note that only the interest element of the mortgage payment can be offset. If you have a repayment mortgage, the capital element is excluded.

Eg rent = £600

Allowable expenses = £500 (inc mortgage interest £400*)

Taxable profit £100, with tax payable depending on your tax rate.

*If the mortgage payment is actually £550 because it's a capital & interest mortgage, only the £400 interest counts.

Werdnal

Also, lots of other legal stuff and rules and regs to be aware of. Read this:

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

and all the links it contains to understand what else you needs to do and abide by.

Fire_Fox

There are loads of threads on this if you run an advanced search. You cannot let your house on a residential mortgage without consent to lease. You cannot buy a new place on BTL and live in it, do you mean the other way around?

Get a tax accountant for the first year. There are absolutely reams of legislation to comply with as a landlord from even before you take on a tenant, the tax is the least of your worries. Being a landlord is a profession, if you are not willing or able to invest a huge amount of time in researching you should not go ahead you could end up in court. :eek:
http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12
http://www.hmrc.gov.uk/manuals/pimmanual/index.htm
http://www.hmrc.gov.uk/incometax/index.htm
http://www.hmrc.gov.uk/cgt/

chomper22

Fire_Fox wrote: »

There are loads of threads on this if you run an advanced search. You cannot let your house on a residential mortgage without consent to lease. You cannot buy a new place on BTL and live in it, do you mean the other way around?

Get a tax accountant for the first year. There are absolutely reams of legislation to comply with as a landlord from even before you take on a tenant, the tax is the least of your worries. Being a landlord is a profession, if you are not willing or able to invest a huge amount of time in researching you should not go ahead you could end up in court. :eek:

Thanks Firefox. I was going to get a letting agent manage the rent. I have already got permission from my mortgage lender to rent the place out with a residential mortgage, and I have been advised I could get a let to buy mortgage (not a buy to let). I will have to look into it more though.

Thanks everyone for their help

Fire_Fox

chomper22 wrote: »

Thanks Firefox. I was going to get a letting agent manage the rent. I have already got permission from my mortgage lender to rent the place out with a residential mortgage, and I have been advised I could get a let to buy mortgage (not a buy to let). I will have to look into it more though.

Thanks everyone for their help

Please understand the buck stops with the landlord legally. You will be the one in the legally binding contract, you cannot delegate your legal responsibilities to a letting agent, they are simply your representative and many have no qualifications whatsoever.

Too many landlords on here have made that mistake and got themselves into a heap of trouble by accidentally breaching the tenants rights and even ending up in court. Please read G_M's excellent post and ensure YOU are meeting all your legal obligations and you understand the tenants many rights (even if they are a nightmare!). Certain requirements you need to fulfil either before you let or immediately afterwards, like tax the rent is the least of your worries.

kingstreet

You'd get a let to buy mortgage for your current property if your lender refused consent to let.

All you are looking for now is a new residential mortgage with a self-funding let property in the background.