Rental income and tax credits

rjn2112

Hello,
I'm looking for some advice please. We recently filled in our tax credit renewal and declared that we now have income from rental property. We have a mortgage on our previous which is now too small and have moved to a rental property ourselves. We didn't want to come off the property ladder so we're renting our property out. The rent we pay on the new property is more than the income from the property we own and we're still paying a mortgage so we're not doing it to make money. Financially, we are slightly worse off.

On the tax credits renewal/application form, I understood that they required just the gross rental income figure which i put down. This has drastically affected the tax credits we receive - we are now not entitled and have to pay back a £1500 overpayment which obviously has completely blown our budgeting!

I found an old thread on here which said that the figure they need is the net income, for which expenses can be deducted - maintenance, insurance, and even the interest aspect of the mortgage payments.

I phoned HMRC to ask to amend my claim on this basis and was advised that the figure I gave was correct and that they don't take into account any expenses. I would expect them to know what they're talking about but the call handler didn't sound too convinced himself, and didn't sound interested in the slightest.

Is anyone able to shed any more light on this for me?

Many thanks in advance

Brighty

The figure we gave them was net, you can deduct expenses such as, insurance (buildings, landlord, boiler cover), maintenance, agents fees, mortgage interest, basically the same as you enter on your tax return. What you can't do, for tax credits or your tax return, is deduct the rent you are paying on your new place.

You also deduct £300 from the total as rental income comes under 'other income' where the first £300 is disregarded

From HMRC website

https://www.gov.uk/guidance/tax-credits-working-out-income

"Property income
Include income from property in the UK that you own or rent.
Don’t include:
income from the Rent a Room scheme
property income included in your self-employed income
If your rental property made a loss, you can use a working sheet (PDF, 970KB) to help you work out what to enter."

How can a property make a loss is you can't deduct any expenses?

taken from that HMRC work sheet

Note 3 – property income
Letting property does not constitute a trade, so should not be included in any
income from self-employment.
Rental property
If you have a rental property that made a loss, relief for tax credits purposes is
generally given in the same way as for Income Tax. If you made a loss, include ‘0’ in
respect of this income in your calculation of ‘other income’ for the year.
Losses on property income
Normally, the loss should be carried forward and set off against profits from the
same source in the following tax year. Since 6 April 2011, the same rule has applied
to furnished holiday lettings, including losses unrelieved at 5 April 2011. If, however,
part of the loss arises from capital allowances or from agricultural land, that part
of the loss may be set against other income which you – but not your spouse or
partner – may have, either in the tax year in which the loss was made or in the
following tax year.
In such cases, the amount of loss relief available for tax credits purposes is based on
your tax calculations. Please see ‘Example 1’ opposite.

Brighty

Icequeen99

Essentially the figure you give is the same as you will give for your tax return.

The previous poster has linked to the guidance.

You will need to submit a mandatory reconsideration against the final tax credits award as that is the only way you can now get it amended. but the time limit is 30 days from the date on the final award notice.

IQ

sheramber

You can only claim the interest part of our mortgage payment, not any capital repayment.

rjn2112

Many thanks for all your help with this. I'll work out the net and submit a reconsideration.

What annoys me is that the advisor at HMRC has given me completely the wrong information! With that much money at stake (overpayment and nil decision), I find this horrifying!

Many thanks again