Does the TAXMAN Know about your 'buy to let' rent income investment ?

Werdnal

Galeeno, I know you sent me a private message (check your spelling!) and I have done as you asked

(by the way, this is a public forum and members are are entitled to post what we wish so long as it is within forum rules, not slanderous, racist or offensive).

I felt asking me to modify a previous message (which I did at 12.49am) because you didn't like the tone of my comment was acceptable, if a little OTT when other members here can freely search all your other posts and come to the same conclusion as I did, but then posting to the forum (at 1.32am) that you had sent me a PM when I had already done what you asked, was unnecessary and is drawing more attention to you (which you mentioned in your PM you wanted to avoid!)

I did remove the sentence you felt offended by, but still stand by my amended message above and will not change it again!


And yes, in answer to your latest questions, there is a certain amount of trust employed by the HMRC about declaring tax on rental income, or indeed any tax liability, but the HMRC come down very hard on those who fiddle and there are many ways they can find out. Its the same with any legislation in this country - you are not legally supposed to drive down the M1 at 120mph, but there is nothing to stop you trying it, and taking the penalty on the chin when PC Plod is sitting round the corner waiting for you!

Galeeno

browneyedbazzi wrote: »

Yes, you can lie to HMRC ....but that comes with huge risks because if you get audited and it is found out you will almost certainly go to jail (deservedly so!). What you are talking about is tax evasion.

If it's something you're doing or thinking about doing then it's incredibly stupid to discuss it on an open internet forum. If you think the authorities can't/don't read online forums and aren't able to trace who made posts then you're wrong. If I was working for HMRC and read your posts I'd be sending off the paperwork to get your details released so that I could go through your finances with a fine tooth comb....I really hope that someone is doing just that and that if you are evading tax that you get the trip down the steps that you deserve.

No nothing like that, and it is great they have toughened laws.

It is just when you read other websites, and pages they give diff info.
(tax reducing by reclaiming it back with mortgage interest, maintenance, agent fees etc)

Sometimes you don't know what to believe and what not to believe when you read it online.

thanks anyway

HappyMJ

Galeeno wrote: »

No nothing like that, and it is great they have toughened laws.

It is just when you read other websites, and pages they give diff info.
(tax reducing by reclaiming it back with mortgage interest, maintenance, agent fees etc)

Sometimes you don't know what to believe and what not to believe when you read it online.

thanks anyway

What you've just said there is tax minimization...totall legal..they are all valid expenses. You can even claim mileage to visit the property whenever required. The services you've seen are offering advice (for a fee) to people who don't know what expenses they can claim.

Werdnal

There are recognised and allowable expenses that you can use to REDUCE your tax. Have you read any of the replies here to date and understood them? What about the links you have been given? As it seems you are still missing the point ...

It is not a fiddle to work out the costs and expenses of running the letting property (including maintenance, mortgage INTEREST only, admin fees for letting agents, repairs, even down to postage, 'phone calls etc if you want to be precise) and deduct that from the rental income you make. However, you have to work it out and keep records, not just take the rental income and decide you have spent the same amount on running the let, so do not have to declare anything.

You are only taxed on the PROFIT after the allowable expenses are taken off, but on the Self-sassessment form, they ask for the total, less the cost/expenses, and the final figure left is what you are declaring to HMRC.

This profit is also classed as additional household income, and must therefore be declared as such if you claim any benefits, tax credits etc.

You are not doing anything wrong by calculating what it costs you to let the property (following the guidance and allowances that HMRC will accept), and this is the correct way to do it.

If you don't know what to believe, read this:

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

which is the official Government guidance on renting out a property and paying tax, and hopefully you will believe that!

fred7777

G_M wrote: »

Rent £500 pm for 11months (there was a 1 month void between tenants in month 6) = £5500 pa

Mortgage repayments = £350 pm of which £220 is interest = 2640 pa
letting agents fee= £500 pa
Gas certificate = £65 pa
etc etc

Add allowances (2640+ 500 +65 + etc etc)= £3205

Subtract from income (5500 - 3205) = 2295

Thus taxable profit is £2295

This is almost exactly the formula HMRC used for a flat which we couldn't sell in 2008. Tax is taken via PAYE they simply adjust the tax free sum down by £2295.

A couple of things to add, if there is a managing agent for the flat then their fees can be deducted from the profit in the calculation.

Also any money spent on upkeep or travel to and from the flat for maintenance can also be deducted. I believe this is usually done by claiming it back with accounts to back up the claim afterwards.

G_M

fred7777 wrote: »

This is almost exactly the formula HMRC used for a flat which we couldn't sell in 2008. Tax is taken via PAYE they simply adjust the tax free sum down by £2295.

A couple of things to add, if there is a managing agent for the flat then their fees can be deducted from the profit in the calculation.

Also any money spent on upkeep or travel to and from the flat for maintenance can also be deducted. I believe this is usually done by claiming it back with accounts to back up the claim afterwards.

1) My 'calculation' included £500 for letting agent

2) it was not intended to show EVERY 'allowable expence' (which can be looked up on the HMRC website) but to demonstrate the principle of how the calculation works.

fred7777

G_M wrote: »

1) My 'calculation' included £500 for letting agent

2) it was not intended to show EVERY 'allowable expence' (which can be looked up on the HMRC website) but to demonstrate the principle of how the calculation works.

No criticism of your "calculation" was intended.

1. Letting agents and managing agents are not the same thing.

2. I don't think anyone though your calculation was intended to show every allowable expense.

My posting was simply intended to agree with your and add that you could include deductions of allowable expenses and tax could be paid via PAYE.

Dave_the_Ginger_Cat

If you are seeking to minimise tax (not avoid it), what you need is a good accountant. You can get so far with advice and reading forums like this, which will probably get you through a single let with relatively simple circumtances, and where you can extract any interest paid from your mortgage payment readily.

Anything more, 'fraid you need to pay for advice - it will probably save you money

HTH

Dave who is a) not an accountant and b) a landlord of 15 years

Better_Days

Just to add to the mix, if the Revenue undertake an enquiry into your return they will ask you to back up the figures you have declared for income and expenses with evidence. This could be bank statements, tenancy agreement, receipts for expenses etc. Expenses maybe disallowed wholly or in part if there is no evidence that they have been incurred in the course of running the business. The income declared will also be looked at closely too, and in the light of the rents charged in the local area.