Consent to Let - Mortgage Tax Relief

WR83

Because of my job, I am in a position where my mortgage company will provide me with Consent to Let from day one of owning a property.

I currently intent to buy a property locally and let it out, I will remain in the house that is provided (rent payable) by my employer.

As I will be renting out the property I will obviously have to complete a Self Assessment Tax Return, but I just want to check that although it is the only house I own (and it is not on a buy to let mortgage), will I still be able to claim Tax relief for the interest on my mortgage and the expenses of renting out the property.

I can only find advice only for those with a buy-to-let mortgage, but mine will technically by residential.

To follow on from that, I have done some basic sums as an example, and wonder if people think they work out.

If I take a mortgage of £200,000 with an interest rate of 4% my payment would be circa £850, this would be matched by a rental income of £850.

I then work out the first year of interest payments to be £8000 (200000 x 0.04), this would be balanced against a rental income of £10,200 resulting in a profit of £2,200 which would be taxable. I would then presumably be able to claim additional expenses against this profit.

I am conscious that the situation changes again in 2017, but just trying to work out if this is correct at the moment.

Any advice or guidance / experience would be very welcome. First post, so please be gentle!

dimbo61

Why are you doing this ?
What will you gain by becoming a Landlord.
You would not get a BTL mortgage if the Interest only payment was the same as the rent you could get.
It needs to be 125% at say 5 or 6%

silvercar

You can claim the interest in the mortgage, whatever type of mortgage you have.

Kynthia

The HMRC doesn't care what mortgage you have. If you are receiving rental income you need to declare it. Then you can calculate your allowable expenses, deduct them from the income to work out the taxable profit.

You can ask your mortgage lender to send you an annual statement with your interest seperately identified.

WR83

Many thanks for the responses! All useful. I am now trying to work out how the changes in tax relief may impact on my purchase.

As for the reasons why I am doing this - I am currently provided a property by my employer which is much bigger than those I could afford, for a rental rate including council tax much cheaper than my mortgage. It therefore does not make sense for me to move out.

By becoming a landlord, it means I have the security of owning my own home, even if I do not happen to live in it. Not really about making huge sums of money, just making sure that I reduce the cost of the purchase where possible.

Thrugelmir

WR83 wrote: »

As for the reasons why I am doing this - I am currently provided a property by my employer which is much bigger than those I could afford, for a rental rate including council tax much cheaper than my mortgage. It therefore does not make sense for me to move out.

And if you lose money by renting out your own property?

WR83

I am not sure how I can lose money, but thoughts appreciated!

If I use example numbers below, it might make it clearer.

Imagine the following (numbers just example)

My rent including council tax - £450 pm
Mortgage £850 per month
Rental income £850 per month
Rental Council Tax £100 per month.

If I lived in the house I purchased my minimum outgoings would be £950 per month.

I would therefore have to lose £500 per month on tax and expense of renting the property for me to make a loss?! Effectively someone is contributing £500 towards my mortgage for me each month (less costs). Have I missed something or does that make sense?! I am only paying one set of maintenance costs for a house as the one I rent is maintained for me.

Thoughts welcome.

silvercar

Have I missed something or does that make sense?! I am only paying one set of maintenance costs for a house as the one I rent is maintained for me.

Comparing buying vs not buying as opposed to buying and renting out vs buying and living in it.

benjus

WR83 wrote: »

I will obviously have to complete a Self Assessment Tax Return

Not necessarily. You must notify HMRC if you have additional tax liability, but if you're already on PAYE and the extra income is fairly low (google for the actual thresholds), HMRC may decide to collect tax by changing your tax code rather than using self assessment.

Remember that if you pay income tax at the 40% or 45% rates, the amount of tax relief you get on mortgage interest will be reduced when the changes from this year's budget take effect.

WR83 wrote: »

I can only find advice only for those with a buy-to-let mortgage, but mine will technically by residential.

In most respects a residential mortgage with consent to let is considered equivalent to a BTL mortgage.

Thrugelmir

WR83 wrote: »

I am not sure how I can lose money, but thoughts appreciated!

Property is empty or the tenant fails to pay you. Then you've the full mortgage and other costs to fund out of your own money.

In the example you've given you've made no allowance for maintenance and upkeep either. Having tenants will incur wear and tear. This is another tax allowance that is up for your review and potentially going to be abolished.

ognum

You haven't mentioned anything in your figures for repairs and renewals. I own several let properties and there is seldom a month when I don't have an issue with one despite them being well maintained and cared for.

You need to budget money for repairs, annual safety inspections, voids, getting new tenats etc.