Rental Income

RodneyIOW

My wife and I bought a flat together. As we had a child two years ago we moved as the flat only had 1 bedroom. We are renting the flat out to my wife's brother.

Our mortgage payment is £540 a month. Our wife brother pays £580 and we use the extra money to pay for things when they gone wrong. This year the shower broke so we put a new one in and did some work to the outside of the property.

We have not declared that we are renting this to our mortgage provider or HRMC. This is something I want to change.

I imagien when we tell the mortgage provider we will pay more per month on our mortgage but not telling them that we have done it for 2 years will not be a huge issue.

I am worried about not declaring it to the taxman. What is the best way to tell them?

As is a joint mortgage could my wife declare this all on her tax return and I not declare it on mine. Or do we need to declare 50% on mine and 50% on her.

My wife does not work so will not hit a threshold on income. I pay a lot of tax and near the 50k mark so will begin losing child benefit if I tip over.

Any tips of where I can get advice would be great...

somethingcorporate

There are a lot of issues here. Talk to your lender first, make sure you have proper insurance on your house and fulfil your landlord obligations such as an annual gas safety certificate.

In terms of the tax if the house is owned jointly then you cannot just allocate her the entire income. However, you only pay tax on the PROFIT which is your rental income less legitimate expenses which includes the interest element of your mortgage. If you let the property furnished you can claim 10% of your rent instead of the direct cost of replacing furnishings (or claim for direct replacement when things need renewing but not both).

You can also claim for insurance, ground rent, and any other legitimate cost associated with running your rental business (which it is, even if it is done so casually).

I find it extremely unlikely you will be paying a lot in tax, if anything at all. I can provide a full list of what I include as expenses on my rental tax return if you like?

We've rented our property out for 2 years and not made any taxable profit yet.

mustnotspend

Hi something corporate.

I'd be interested in seeing a list please if you could share. I'm looking at about £3k profit even though I've a hefty mortgage (£1k rental income per month)

Thanks
MNS

cpdc1030

somethingcorporate wrote: »

There are a lot of issues here. Talk to your lender first, make sure you have proper insurance on your house and fulfil your landlord obligations such as an annual gas safety certificate.

In terms of the tax if the house is owned jointly then you cannot just allocate her the entire income. However, you only pay tax on the PROFIT which is your rental income less legitimate expenses which includes the interest element of your mortgage. If you let the property furnished you can claim 10% of your rent instead of the direct cost of replacing furnishings (or claim for direct replacement when things need renewing but not both).

You can also claim for insurance, ground rent, and any other legitimate cost associated with running your rental business (which it is, even if it is done so casually).

I find it extremely unlikely you will be paying a lot in tax, if anything at all. I can provide a full list of what I include as expenses on my rental tax return if you like?

We've rented our property out for 2 years and not made any taxable profit yet.

I'd also be very interested to see your expenses to compare to mine, as this is also my first self assessment with rental property income.

My mortgage interest is about £330/mth, other expenses such as leasehold fees, insurance, gas cert etc are about another £90 per month. Rent is £844 per month so I'm sure I'll certainly have to pay a fair bit, but would be interesting to compare.

One thing that I've never been clear on is what the definition of a "furnished" letting is. I let out my flat as furnished, but the tenant preferred their own furniture, and returned most of the things that I had bought for the flat (I must have really bad taste). Any idea how this should be handled?

Cheers,

cpdc1030

raindudu

mustnotspend wrote: »

Hi something corporate.

I'd be interested in seeing a list please if you could share. I'm looking at about £3k profit even though I've a hefty mortgage (£1k rental income per month)

Thanks
MNS

I will be very interested in seeing it too. I am new to this and would love to get some ideas. Thanks a lot.:beer:

cpdc1030

Whilst we're waiting for somethingcorporate's reply, I've found out about the HMRC home worker allowances.

In 2011-12 you're allowed to claim £3/week without any documentation. For 2012-13 this was increased to £4/week.

http://www.hmrc.gov.uk/paye/exb/a-z/h/homeworking.htm#3

Kynthia

If you are married and both own the property, then you must both declare half the profit less half the allowable expenses. There may be ways of changing this such as a deed of trust, but you should take advice as this affects other things such as how you deal with CGT.

If two people jointly own a property and aren't married, they can have an agreement on how to split the profit.

somethingcorporate

A thousand apologies for not getting back to you all, I had lost this thread and have responded to a number of PMs asking for this info.

Lifted straight from my tax return spreadsheet:

Management Fee,
VAT on Management Fee,
W&T Allowance,
Mortgage Fee,
Tenancy Admin Fee,
Gas Safety Certificate,
Maintenance Charge,
Buildings Insurance,
Ground Rent,
LL Insurance,
Visits to Property,
Gross Tax information to HMRC,
Cleaning,
Mortgage Interest,
Fittings replacement

nomunnofun

Very helpful somethingcorporate. It should also be emphasised that the previously mentioned Wear and Tear allowance appears in a separate section after expenses are entered on the online form.

I also note that rates/council tax is not on your list which I am sure is an oversight.

somethingcorporate

nomunnofun wrote: »

Very helpful somethingcorporate. It should also be emphasised that the previously mentioned Wear and Tear allowance appears in a separate section after expenses are entered on the online form.

I also note that rates/council tax is not on your list which I am sure is an oversight.

The tenant pays the rates/council tax.

The W&T allowance does come after the expenses and I make this mistake every time I fill in my return wondering where it goes!

For the benefit of anyone who does not know what this is - if you let your property furnished you can either claim the actual cost of replacing furnishings when they are required to be replaced or deduct 10% from your gross rent figure to cover it. If your place has loads of cheap ikea furniture (as mine does) the allowance is far better for us!