Tax on rental property

djcuts

Hi

I rented out my property in 2011 after moving in with my partner. We married in October last year.

I moved to an interest only mortgage in June last year, so up to that point was not making any profit on the rent.

So I am now looking into the Tax implications. I have found out that I needed to declare my letting even at a loss for 2011-2012. I have also discovered that I can only offset the interest of the mortgage against tax., so whilst I thought I was tax free Nov 2011- Apr 2012, it turns out I do actually owe tax for this period.

The thing is that I am on 38k so any extra I earn on top of my wage is taxed at 40%. Now my wife is not working, well she has her own cake making business, but doesn't make much money from it, so she is below the tax threshold.

I have read that if I put the house in my wife's name, or the greater share, then it can be taxed on her allowance. I guess there is nothing to be done in retrospect?

At this moment in time, from the £2,192.14 I have made from the rent since letting out and now, I owe 876.86. This is an awful lot to owe when my family (me, my wife and 6 year old daughter) is living off my wage only.

Is there anything I can do here to cut my tax bill legitimately?

My calculations take into account agents fees and insurance and any certificates I have had done.

Any advice would be greatly appreciated.

Many thanks

DJC

Pennywise

You're right - you can't change history. You can put the property into your wife's name or into joint ownership from now onwards to share profits in future, but can't back date it.

I think the best you can do is try to make sure that you've claimed all you can legitimately as expenses to set against the property. Have a good think about maintenance, gas certificates, decorating, etc that you did whilst it was rented out. Also any letting agents fees, mortgage fees, telephone, stationery, administration, etc. Travel to the property to perform maintenance, check on it, etc.

Might be one to put down to experience and pay the tax. By the way, get the tax return submitted and the tax paid sooner rather than later as late filing penalties, interest and surcharges will be running up.

nomunnofun

Moreover - if you are earning £38000, you are not a higher rate taxpayer.

Taxable earnings need to be above £42485 in 2012/13 for this to happen

http://www.hmrc.gov.uk/rates/it.htm

djcuts

Thanks for the replies. Really appreciate your time.

>> nomunnofun - Probably being stupid here, but the rates show 40% rate tax for 2011-2012 as £35,001 - £150,000. Am I missing something?

Regards

DJC

LEP

djcuts wrote: »

Thanks for the replies. Really appreciate your time.

>> nomunnofun - Probably being stupid here, but the rates show 40% rate tax for 2011-2012 as £35,001 - £150,000. Am I missing something?

Regards

DJC

You are missing your personal tax free allowance

somethingcorporate

There are literally dozens of costs you can offset against your rental income. Apologies for the formatting, I have lifted this straight from my tax return SS for a few ideas.

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

As already alluded to above you are nowhere near a HRT payer so you only owe 20% on any taxable profit and given the list of expenses above I am sure you would legitimately be able to reduce this figure (possibly to nothing).

I assume you have complied with all the legalities of being a landlord such as protecting your tenants deposit and getting annual gas safety certificates? Otherwise (as a worst case scenario) you could face financial and criminal ramifications.

Edit: my property is a flat so you may not recognise everything on the list as some of these charges relate to being leasehold.

djcuts

Hi Guys.

Again, many thanks for your comments. I didn't realise that you add on your personal tax free allowance to get to the HTR threshold. That has made my day

@somethingcorporate - Thanks for taking the time to list this stuff down. I have no receipts for anything really, I had a gas safety cert done in 2011 I arranged myself, and one recently by the letting agent. In my calculations I have done rent total minus interest on mortgage minus landlord insurance.

The letting agent looks after everything including the holding of tenants deposit etc. Any work on the property I do myself.

The house is a new build, I let it out unfurnished bar a washer drier and some wall cabinets etc.

Is there any of the above I can reasonably put down against tax amount without the receipts to back it up? I guess what I mean is there a certain allowances you are allowed to take into consideration without being able to prove it?

Regards and thanks

Oh, and what forms do I need to fill in to declare this to the TAX man, bearing in mind I need to do this for 2011-2012 as well as 2012-2013 ??

DJC

somethingcorporate

You need to do self-assessment to cover those periods.

You can offset your agents costs against tax too (or I assume you only took into consideration your income once they had taken their slice).

I'd suggest it is worth some time going through your bank accounts to check what you can identify as being genuine expense for your house. Self-assessment is done on a trust basis so it is very unlikely you will not get asked for receipts (we never have done and not sure we even could) I just keep it all on a spreadsheet.

Simple stuff like traveling to see the property is all claimable, just keep records going forward and I think sensible estimates going backward should be defensible.

CLAPTON

do note that tax year 2011-12 was due 31 January 2013 so you are only a little late and will pay a fine

whilst 2012-13 is not due until 31 Jan 2014.

Skint_yet_Again

If you are an employee,pay tax via a PAYE code and have no other reason to do a self assessment return you will only need to do self assessment for rental income if your gross rents before expenses are £10000 or more, or if your net rents are £2500 or more

http://www.hmrc.gov.uk/sa/need-tax-return.htm

jimmo

djcuts wrote: »

I have also discovered that I can only offset the interest of the mortgage against tax

You were advised that on the House Buying forum in September 2011.

https://forums.moneysavingexpert.com/discussion/comment/46661197#Comment_46661197

As it seems to have taken you the best part of a year and a half to start to sort this out you should seriously consider whether it would be more sensible for you to pay a professional to do it for you.

Whilst it could be sensible, from an Income Tax point of view, for you to transfer (ownership of your former home) the letting income to your wife it could be a disaster from a Capital Gains Tax point of view.

That would definitely be true if the value of the property has risen substantially since you bought it. If the value hasn’t changed much since you bought it you would be gambling on the housing market not taking off again before it is sold.

As things stand you have built up a potentially huge Capital Gains Tax exemption on your former home but if you transfer ownership to your wife you will be throwing that exemption in the bin.