Please Help! Its my first post!

harky

My hubby has rented out his property since April 2010. He has made a loss on rental income until we changed the mortgage to a interest only mortgage in Feb 2012. That year we made a profit of £4,000 that is not including costs to upkeep the property which equal around £3,000, making a total profit of £1,000 for 2012.
The issue we are having is we have not declared it to the tax man as we were not making a profit we didn't feel we needed to.
Will we be charged a penalty for this? If so is there a way of calculating it? and what's the best way forward?

Thanks

CLAPTON

When you say he made a loss in 2010-11 how did you calculate that.
Presumably you are aware that he can only offset the INTEREST on the repayment mortgage and NOT the full monthly payment.

xylophone

https://www.gov.uk/renting-out-a-property/paying-tax

jamesd

He'll probably be charged a penalty that will probably be substantially reduced by telling HMRC before they notice. I doubt that the combined penalties would amount to more than one year's profit.

The problem he has is that he probably made a profit from April 2010 because the capital repayment part of the mortgage is not an expense but is part of potential profit that is retained in the business in the form of higher equity in the property. So he needs to calculate the correct profit and loss for each tax year and tell HMRC those correct figures, remembering that only mortgage interest is deductible as an expense, not mortgage capital payments.

BTL landlords are an area that HMRC targets for enforcement because so many people don't properly declare things, the situation your husband is in. If HMRC notices before he reports it, the failure to declare will look like tax evasion.