New landlord advice needed on tax

Chaucer258

Any advice would be appreciated...

Before I got married I owned / lived alone in a 1 bed flat which since 1st May 2012 I have rented out. Since then I have kept the flat and rented it out while I bought another home.

I rent the flat for £650 a month. I have informed my mortgage company and they gave me 'consent to let'. I pay £706 a month on my repayment mortgage and another £50 a month on the service charge. The flat is unfurnished and I have all the relevant safety certs etc.

I was originally advised that because I don't make any money net of mortgage payments then I don't need to inform HMRC / pay tax on the incoming rent but I have now been informed that I have to.

Is this as simple as telling HMRC the situation and be liable for the backdated tax I may now owe? Will I have to pay tax monthly despite making a £56 per month loss on the property?

Any advice would be appreciated.

martinsurrey

Advanced search, this comes up allllll the time.

£706 on your mortgage is not all allowable, only the INTEREST element is, so you are more than likely making money on this, and so will have to pay tax.

more detials please.

laidbackgjr

As your mortgage is a repayment one, you can only claim the Interest part of the payment against income for tax calculations. So it's likely you are making a taxable profit, so definitely need to advise HMRC. I believe you need to advise HMRC anyway even if you are making a loss. What I would question though, is why you are subsidising someone to live in your house, can you not sell it? Would it not be better to sell it, than to lose money every month?

Chaucer258

Thanks laidbackgjr

The property is very probably in negative equity hence the reluctance to sell. I'd like to keep it as an ongoing investment. I will contact my Mortgage provider and have them confirm what I am paying in interest vs. repayments so I can pay the tax on the 'taxable profit'.

I'll contact HMRC once I have this info.

Cheers!

Thank you too martinsurrey for your helpful response. I did do an advanced search but after trawling through several pages of non relevant info I went this route.

kingstreet

Chaucer258 wrote: »

Any advice would be appreciated...

Before I got married I owned / lived alone in a 1 bed flat which since 1st May 2012 I have rented out. Since then I have kept the flat and rented it out while I bought another home.

I rent the flat for £650 a month. I have informed my mortgage company and they gave me 'consent to let'. I pay £706 a month on my repayment mortgage and another £50 a month on the service charge. The flat is unfurnished and I have all the relevant safety certs etc.

I was originally advised that because I don't make any money net of mortgage payments then I don't need to inform HMRC / pay tax on the incoming rent but I have now been informed that I have to.

Is this as simple as telling HMRC the situation and be liable for the backdated tax I may now owe? Will I have to pay tax monthly despite making a £56 per month loss on the property?

Any advice would be appreciated.

The mortgage amount and interest rate charged would be helpful.

Chaucer258

The mortgage amount is £129k. The property is probably worth £150k. I am paying 4.74%

Really appreciate your help.

kingstreet

The interest element of your total monthly payment is £509.55. It is this amount you can offset against the rental income. With the service charge you mention, your expenses are £559.55.

Deducting this from your £650 a month rental income gives a net taxable profit of £90.45.

Suggest you look at the other allowable expenses as I'd be surprised if all you pay is the mortgage and the service charge;-

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

Chaucer258

Massive help. Thank you Kingstreet.

lazer

I would be surprised if you make much taxable profit on this also

Things to remember - allowable expenses

Insurance
Gas Certificates
Any Maintenance costs (It is only replacement not improvement costs that are allowed
Agency costs

blondebrunette1

Don't forget you can offset against the property income any letting agents fees you have paid to let the property in the tax year and buildings/landlord's insurance premiums as allowable expenses, this will reduce your tax liability

JennyM80_2

I am in exactly the same situation. Kingstreet is totally correct.

You can deduct the interest part of your mortgage and other charges from the income you make off the rent. You still need to report it it HMRC even if you make a loss but you just call them up and let them know.