Tax on rental income issues

Wormwood42

Hey people,

This is my first post on this forum, but I hope you can help.

I own a one bedroom flat that I have an outstanding mortgage on. I don't own any other property and live with my wife and kids in a rented house. I currently rent out the flat and need help with the tax issues that this raises.

The rent that we get from the place barely covers the mortgage and overall we don't get any profit from it (in fact, we make a bit of a loss considering other costs for the flat) other than paying off some of the mortgage.

What I would like to know is what tax I am liable for on the income from the flat and the best way of limiting this.

I'm aware that I'll need to do a tax return from the year 2012 / 13. I can make a good guess at the costs for the flat (replacement carpet etc), but a don't have a record of all that was spent, what level of proof do HMRC require and what sort of thing will they ask for (if anything).

Also, I'm in the 40% tax bracket and have recently become aware that I may be able to claim back school trips and the such as gift aid donations. will this be taken against my tax liability for the rental income? what kind of proof do they need (you don't tend to get receipts from our school!)?

Finally, when I come to sell the place (next year hopefully) to buy a family home, will I be liable for Capital Gains tax as it is my only property and I use to live in it?

Thanks in advance,

CLAPTON

the tax you pay on the rental income is basically the profit:

i.e. rent less allowable expense
and then you pay at your highest tax rate

if the property is jointly owned then the profit can be divided between you and your wife

allowable expenses are thing like :-
mortgage INTEREST only and not the capital element
costs of letting.. agency fees, gas safety checks, advertising, maintenace (but not improvement that are set against eventual capital gains)
if furnished then you can deduct 10% for ware and tear.



if you sell then in priciple you are liable for cgt on the profit
however if you used to live there then you get several reliefs
- the period you lived there
- the last three years
- the letting period.. max of 40,000

and a cgt allowance of 10,600

so all rather depends on the details but often that all works out at zero

no idea about gift aid

CLAPTON

PS

worth searching for landlordzone.co.uk

Savvy_Sue

Wormwood42 wrote: »

Also, I'm in the 40% tax bracket and have recently become aware that I may be able to claim back school trips and the such as gift aid donations. will this be taken against my tax liability for the rental income? what kind of proof do they need (you don't tend to get receipts from our school!)?

CLAPTON wrote: »

no idea about gift aid

The school trips is a new one on me, but yes you can declare donations made under the Gift Aid scheme on your tax return if you are a 40%+ taxpayer, and you then get the difference between 25% and 40% back.

It would not be the full cost of the school trips you could reclaim, but if it's a private school it's likely to be a registered charity, therefore it is possible that you could get some tax benefit on the cost of the school trips if you've Gift Aided those sums too. I'd have thought the school might know, but without receipts you may struggle. I'd also say that was a grey area: you used NOT to be able to Gift Aid 'donations' where you got any benefit, but I know you can now Gift Aid subs to Scouts etc.