renting out our property, while living in rented property. What happens with tax?

c00ki3

Hi guys,


I have a query, hopefully straight forward, however haven't been able to find the answer via google.


Due to various issues we are having to move, but are unable just yet to sell our property. We will be moving into a private rental. I have researched, and understood the whole deposit protection, informing mortgage company side of things but am unclear how the tax side will work.
From the research I have done, the following shows what we could get rent wise and what we have to pay rent wise.


Current monthly mortgage £1200
possible rental income £1600


Cost of renting in new area 1600 a month


My question is - do we pay tax on the £400 so called profit each month, despite the fact that will only cover the additional we are having to pay in rent.


Many thanks for any advice in advance

Caz3121

c00ki3 wrote: »

Current monthly mortgage £1200
possible rental income £1600


Cost of renting in new area 1600 a month


My question is - do we pay tax on the £400 so called profit each month, despite the fact that will only cover the additional we are having to pay in rent.

only the mortgage interest is a valid expense for tax, not the full repayment (I am assuming this is a repayment mortgage)
There may be other allowable expenses you can also deduct for tax (gas check, agency fees etc)

rent - mortgage interest - expenses = taxable amount
the rent you pay elsewhere is not relevant

AdrianC

You need to view your personal accommodation expenses separately from your income from your rental business activities, as they are totally unrelated.

Everybody needs to pay to live somewhere. It can never be offset against income.
You are choosing to get a rental income, which is taxable.

Kynthia

Your own living costs are irrelevant to your property business, and it will be a business so you'll have to treat it that way. Only costs wholly and directly attributable to the business can be tax deductions, which your living costs aren't, and the repayment element of your mortgage is not allowable as it's assumed you'll get that back if you sell or remortgage.

AnotherJoe

You say " informing mortgage company" but it's not as simple as that, you need to ask permission. Odds are they will give it, but they may not, so you can't just go ahead and do it. Or at least, you can but the consequences might not be so good !

Also, as said you'll pay tax on the difference between your rental and the mortgage interest. Not the whole mortgage unless it's interest only On a repayment mortgage the interest is different every month you need to track that.

The fact you are renting elsewhere is irrelevant for tax purposes. You cannot claim that as an expense only things directly related to letting your house. For example cost of gas and electricity certificates, maybe agents fees etc.