Renting my Property - Declaring Tax

corkyefes

Good Morning,

Just looking for some advice from somebody in the know or somebody in the same situation.

As of 1st June this year (2013), I will be renting out my property to a family member and I have been made aware that I have to declare this income by filling out a tax return.

The monthly rental fee Im charging will only cover the mortgage and I will not make any profit from it.

After looking on the Gov.UK website, it seems abit confusing, so therefore I am looking for somebody answers to a few questions, if possible:

• I believe I have to register and fill out a self assessment form. Is this correct?
• Its says that I need my national insurance number, personal contact details and company details... I do not have a company, do I have to set one up?
• The next tax return has to be in by January 30th 2014 apparently... Do I just tell them the income from 1st June 2013 to 30th January 2014 or do i need to tell them about what the projected income will be from 1st June to 5th April?
• Is the self assessment form easy to fill out? How does it work? Will it basically ask me what my mortgage payment is then how much rent I receive?

Edit - I have just noticed that I can register for any other reason and select that i earn income from land or property.


Hope somebody can answer my questions as I am new to all this.
Regards

kingstreet

Just because your rental income only just covers the mortgage payments will not mean there is no tax liability. It's possible to pay higher mortgage payments than the rent and still have a taxable surplus.

This is because only the interest on the mortgage is allowable. If you are paying £500 for the mortgage and only receiving £400 in rent, you'd think you're making a loss. If the interest element of the mortgage payment is only £300, there's a surplus of £100 and that would be taxable if you don;t have other allowable expenses, such as insurance, letting agent costs, repairs etc.

In answer to your question, in order;-

Yes
No - use your own name as you are technically a sole trader here
Tax return for Jan 2014 is for tax year 12/13 just ended so nothing for you to declare until Jan 2015, for 13/14 tax year
Yes - you simply need to keep notes of income and allowable expenditure.

corkyefes

Thank you for your reply.

So basically I will pay tax on the mortgage payments minus the interest, however I can lower this by telling about insurances fees etc?

How would the tax be taken? Would it come out of my wages or would I have to pay by cheque or something?

Right so basically in Jan 2015 I have to declare all the income earned from the house between when I start (June 1st 2013) until April 2014?
Is that correct?

kingstreet

Yes. You deduct allowable expenses, such as mortgage interest, insurance, repairs and maintenance costs from the rental income you receive. Whatever is left over is your taxable surplus.

You declare the loss, if any, or the surplus, to HMRC by making a tax return each year, using SA Online. The latest this can be filed is 31 January of the following year, but if you wait until then, you'll pay the tax on that day too, as that's when it's due. You pay by card when you do it, not via PAYE.

So, if you wait until 31 January 2015, you'll be completing the return for 6 April 2013 (with you actually starting in June 2013, of course) to 5 April 2014 and setting out the income and allowable expenses for your letting business and paying any tax due on that day.

somethingcorporate

Have you got permission from your lender to let the property? do they know you will be renting it to a family member?

Are you aware of all the other legal and financial requirements of being a professional landlord?

corkyefes

kingstreet - Thank you for your detailed information, it has really answered my questions.

When you say I can deduct expenses, do I have to prove them expenses with receipts?
Is there a maximum that I can deduct? (for example, if my mortgage minus interest is £200, which I would pay tax on, can I say i have had £200 repairs to pay each month so that no tax is chargeable?

somethingcorporate - I have been given consent to let from my lender and they told me on the phone that I can lend it out to anybody.
Also on my confirmation from my lender there is no small print to say I cannot let to family members.

Regards

happycamel_2

If the property is furnished you could opt for the 10% wear and tear allowance. This means you take 90% of the rent received, deduct allowable expenses eg mortgage interest, professional fees etc then pay tax on the rest. Alternatively you will need receipted expenses you can't just make up a £200 figure or whatever. There isn't a maximum because this has to be real money you have spent on a cost that is wholly, exclusively and necessary for the running of the enterprise.

Given you seem to know very little about this (I mean this nicely) I suggest you use a local accountant to do your tax return for the first year at least. It'll cost you about £150 but they'll get it right and you'll find out how to do it if you want to do it yourself after that.