Paying tax on rent received

ladyjaneausten

we are renting out our house with the permission of our lender as there is still an outstanding mortgage - combined capital and endowment.
We understand that we will have to pay tax on any income received but are struggling with where to start.
Have been on the HRMC website but are none the wiser. Any advice although the best will be to see an expert I suppose..
Thanks

lonelyinlondon

I did this recently. You have to file a self assessment each tax year, which i did online.

holly_hobby

You report you annual (net of deductions) taxable rental income to HMRC, which will be charged at your highest rate.

If you are married and both jointly own the property, then the tax is automatically assumed by HMRC to be split 50/50 - which is how it must be declared in each of your annual self assesment. The only way to apportion rental income, unequally or to just to one of you, would be to have the deeds held in a tenants in common arrangement, and complete HMRC Form 17, detailing the division of rental income, which must mirror the split of ownership as per the TIC.

If you do not currently utilise SA - you need to register via HMRC - here's a link to explain .... http://www.hmrc.gov.uk/sa/ . You must ensure that you submit on time each yr, or you will suffer a penalty.

If you feel nervous about this, then you could employ an accountant to determine your net rental income, and complete and submit your annual returns on your behalf.

Hope this helps

Holly

Wh05apk

and you can only offset the interest element of the mortgage, not the full monthly repayment if you are on a repayment basis.

holly_hobby

Yes thats part of the permitted deductions I referred to and you're allowed to apply to your gross rental income, under your SA return - as well as being unable to deduct any captial repayment element, you also can't deduct the premium relating to the endowment (LCE) you mention. (from which I assume your ref to "capital and endowment " mortgage, is actually referring to an interest only endowment mortgage, or possibly a part and part arrangement i.e part IO (with LCE) & part repayment).

Its also worth noting re mge interest, that whilst mge interest is a permitted deduction re rental income, in certain circs (ie - as a result of equity release), deduction of total incurred mge interest is not always a permitted deduction, but will be capped at a sum equal to the value when it entered let/was purchased for let.

Mge interest isn't the only deduction you can apply to rental income, you may also offset costings incurred with managing the let, such as professional management fees, letting fees, cost of essential repairs and upgrades, utility maintenance, legal & professional costs associated with the let, and other bits and bods.

As I say your Accountant should be pretty well versed in this , and/or HMRC will be happy to provide details of permitted associated costings that may be applied to your gross rental income.

Hope this helps

Holly

Thrugelmir

Suggest you take advice from an accountant to ensure you offset all relevant allowances and expenses against your rental income. The accountants bill be tax deductible to.