Does my friend need to be doing a tax retun?

lynsco

I am a private landlord who does a tax return as and I do make a profit on the rent as there is no mortgage to pay.

My friend is renting out her 2nd hone and has done so for 2 or 3 years however I have just discovered that she has not registered with hmrc as she believes she has no tax to pay as she loses money on renting it out after deductions. She is however including the costs of her mortgage in these thoughts, but I believe its only the interest that you can offset is that correct?

Regardless, should she not be submitting a tax return and also if caught surely she will be fined?

davidbo76

She will need to contact HMRC , who will very nicely ask her to register for a tax return, to include supplementary property pages. On filling this in, preferably online, the HMRC system will automatically calculate a tax liability. If she is making a loss, then no tax will be payable on property activity. You are correct in stating that only mortgage interest is allowable.

If she is in paid employment, earning over 10k pa, and her employer is following PAYE (pay as you earn) she will pay tax on that automatically.

HMRC apply penalties if the return is late, or tax is not paid on time.

kinger101

Ordinarily, you are only required to submit a tax return if;

(a) you need to declare additional tax to pay; or
(b) because HMRC asks you to.

However, there are two potential issues here. For one, are you 100% sure your friend has correctly calculated the loss? You seemed a little unsure whether a capital element of the mortgage payment may have crept in there. Secondly, losses can be offset against future income on the same property (assuming it's not let to a connected person). Filing in a tax return creates something of an audit trail for these losses. If you don't submit a return, I'd make sure very good records are maintained just in case HMRC query this in the future.

So, in essence, if you don't submit a return;

(a) be confident the loss has been calculated correctly;
(b) make sure you have and keep detailed records in case you need to submit a return in the future.

theartfullodger

She really wants to do a return: for 2 reasons...
a) To avoid fines & penalties from Mssrs HMRC..
b) So she can carry losses forward & then pay less tax in future if & when she makes a profit..

Cheers!

owitemisermusa

I am under the impression that once you receive income from rental property you are duty bound to file a return whatever your profit/loss state.

owitemisermusa

The carrying losses forward thing confuses me though as I assume that your tax is adjusted up/down through your PAYE and therefore carrying forward is a moot point?

I need someone smart, an accountant maybe...

anselld

owitemisermusa wrote: »

The carrying losses forward thing confuses me though as I assume that your tax is adjusted up/down through your PAYE and therefore carrying forward is a moot point?

I need someone smart, an accountant maybe...

No. You can only carry forward a loss against future property income, not against PAYE earnings.

( However, for small property income you can have tax collected through tax code adjustments)

kinger101

owitemisermusa wrote:

I am under the impression that once you receive income from rental property you are duty bound to file a return whatever your profit/loss state.

No. I've set out the conditions under which you are required to file a return above. It might be advisable to do so voluntary, but there's no one answer suitable for everyone. It might be pointless for example if I was positive my calculations were correct, and I was planning to sell the property so could never offset the loss.

owitemisermusa wrote: »

The carrying losses forward thing confuses me though as I assume that your tax is adjusted up/down through your PAYE and therefore carrying forward is a moot point?

I need someone smart, an accountant maybe...

Losses from a property rental business can only be carried forward and offset against future profits from the same rental business. There is no mechanism to adjust via PAYE; it cannot be offset against other income (salary, dividends, interest).

Why do you feel the need to commit on the thread if you are only going to confuse the OP? They asked for advice. Not everyone to share their ignorance.

mrginge

kinger101 wrote: »

No. I've set out the conditions under which you are required to file a return above. It might be advisable to do so voluntary, but there's no one answer suitable for everyone. It might be pointless for example if I was positive my calculations were correct, and I was planning to sell the property so could never offset the loss.

Can you provide evidence from hmrc that you do not need to declare rental income if you have calculated zero tax liability?

owitemisermusa

kinger101 wrote: »

No. I've set out the conditions under which you are required to file a return above. It might be advisable to do so voluntary, but there's no one answer suitable for everyone. It might be pointless for example if I was positive my calculations were correct, and I was planning to sell the property so could never offset the loss.



Losses from a property rental business can only be carried forward and offset against future profits from the same rental business. There is no mechanism to adjust via PAYE; it cannot be offset against other income (salary, dividends, interest).

Why do you feel the need to commit on the thread if you are only going to confuse the OP? They asked for advice. Not everyone to share their ignorance.

Wow, kinger101. Is that necessary?

I've outlined my thoughts on the OP's question then followed up with a question of my own, surely that's not illegal?

Even if my understanding of the rules for Self Assessment and rental property are wrong, that's why there are more experienced people to clarify issues.

It would be helpful if those who appear to be more experienced were more courteous.

owitemisermusa

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