First time landlords: VAT? Tax?

pph

Hi, we are both in full time employment and want to move to another city and let our flat out (which we own). Out mortgage company will flip the mortgage into a buy to let thankfully.

I anticipate being a higher tax rate earner, my partner's a gardener so is unlikely to be.

Two questions:

1) At what rate to we pay income tax from renting the property? And will this be on all the rent paid, or just on any profit we make after paying the mortgage with the revenue from the tenants' monthly rent?

2) Does VAT need to be paid? We aren't professional landlords but our combined income might just be over £83k. Thinking about this further, it may have implications for question 1 (?)

#columbo: one more question ma'am... but I once heard it was necessary to charge your tenants 125% of the monthly mortgage repayments as rent? I think not, it was just mentioned to me years ago by a friend looking into this and was probably a particularity of his particular buy to let mortgage. My guess is this is irrelevant.

Thanks:beer:

agrinnall

Oh dear, I hop you're not doing this soon as you have a lot to learn if you want to avoid expensive mistakes. I imagine G_M will be along before too long with the useful links to LL basics.

You have a complete misunderstanding of VAT, suffice it to say that it is exceedingly unlikley that it will ever become one of the things you need to worry about, which given there are many, many more that you do have to wrry about can only be a good thing.

marliepanda

Income is income, not profit. Allowable expenses are changing it used to be that the mortgage interest was able to be offset, I think that is changing.

Many BTL require the rent to cover the mortgage plus 25%. You should know your mortgage terms. We can't read them from here.

If you own the property 50/50 then you'll pay income tax on half the income at your personal rate.

sparky130a

pph wrote: »

Hi, we are both in full time employment and want to move to another city and let our flat out (which we own). Out mortgage company will flip the mortgage into a buy to let thankfully.

I anticipate being a higher tax rate earner, my partner's a gardener so is unlikely to be.

Two questions:

1) At what rate to we pay income tax from renting the property? And will this be on all the rent paid, or just on any profit we make after paying the mortgage with the revenue from the tenants' monthly rent?

2) Does VAT need to be paid? We aren't professional landlords but our combined income might just be over £83k. Thinking about this further, it may have implications for question 1 (?)

#columbo: one more question ma'am... but I once heard it was necessary to charge your tenants 125% of the monthly mortgage repayments as rent? I think not, it was just mentioned to me years ago by a friend looking into this and was probably a particularity of his particular buy to let mortgage. My guess is this is irrelevant.

Thanks:beer:

:doh: That is all.. so much wrong....

AdrianC

pph wrote: »

1) At what rate to we pay income tax from renting the property?

Your own marginal rate of income tax. If you're a higher rate taxpayer, then 40%.
Is the property jointly owned by you both? If so, how? This determines whose self-assessment how much income needs to be submitted on.

And will this be on all the rent paid, or just on any profit we make after paying the mortgage with the revenue from the tenants' monthly rent?

It will be on your income from the property. Incomings (rent) minus allowable outgoings. The allowable outgoings include mortgage interest, but not repayment. A higher rate taxpayer does not get the full interest deduction, though - the interest can only be set against basic-rate tax.

2) Does VAT need to be paid? We aren't professional landlords but our combined income might just be over £83k.

Will your rental income, after deductions, be over £83k? No? Then you don't need to register for VAT.

And, yes, you ARE "professional" landlords. This is a business activity for which you are being paid.

but I once heard it was necessary to charge your tenants 125% of the monthly mortgage repayments as rent?

Your lender may want the rent to be 125% of the repayments.

G_M

The answers to your quesions are found by following the relevant links in this post here:

* New landlords: advice, information & links

However there are some changes coming to the LL tax regime - I'm not sure if the HMRC sites have reflected these yet.



The post above comes from this thread here:

** Tenancies in Eng/Wales: Guides for landlords and tenants This thread is intended to provide information to both landlords and tenants relating to Assured Shorthold Tenancies (ASTs) in England and Wales.

Topics covered:

* Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new protection (2015)

* Deposits: payment, protection and return

* Ending/renewing an AST: what happens when a fixed term ends? How can a LL or tenant end a tenancy? What is a periodic tenancy?

* Rent increases: when & how can rent be increased?

* Repossession: what if a LL's mortgage lender repossesses the property?

* New landlords: advice, information & links

* Letting agents: how should a landlord select or sack?

boliston

there is no vat on residential rent

booksurr

hmmm, some technicalities....

as "we" appear to be co-owners, how you split the rental income (and therefore the profit) depends on whether "we" are a married couple or unmarried "partners":

• married: must be split 50/50 unless owned as Tenants in Common with a declaration of trust in place specifying the split and with a Form 17 lodged with HMRC
• unmarried: you can split the income/profit in any proportion you want irrespective of what your underlying legal ownership share is recorded as

you are taxed as individuals on each person's respective share of the rental income so pay tax at your respective marginal rate on your "total" income. It is important to appreciate what that means because of the section 24 changes:

The rent received less all non finance interest costs (ie excluding the mortgage interest) gives you the taxable income figure which is added to all your other taxable income (salary etc) to give your "total income" which determines the tax bracket you fall under.
Having calculated how much tax is due on that figure, you then reduce the amount of tax payable by the mortgage interest relief @ 20%.
This is the "section 24" change which you will need to understand in detail if you want to survive and means your financial viability will be radically different to that of your basic rate partner. The S24 could however push your partner into the higher rate bracket anyway since the taxable income figure is before interest and will catch out a lot of people who never imagined they would be HR taxpayers

residential property letting is an exempt supply. Therefore output VAT is not charged on the rent, nor can input VAT be recovered. Whether you are VAT registered or not is irrelevant since the supply itself is exempt and cannot be reported under whatever entity you are registered as (but then presumably your VAT registered business is not the property owner so has no entitlement to declare the income in its books anyway?).

as mentioned the 125% idea relates to the lending criteria previously used for BTL mortgages (it is now different and is 140 or 145% depending). What it meant was the rental received must be at least 125% of the monthly interest charged on the loan using a 6% interest rate. If it was not then the loan size would be reduced and you would not be able to borrow as much as you may have needed. Since you seem sure you have a BTL mortgage in place that matters not?

now go and read every word of GM's guide and every page of every link therein so you understand your legal obligations to the tenant and your tax liability to HMRC

csgohan4

lisa_edward_swan wrote: »

HI

Income from house property is defined as the income earned from a property by the assesses. House property includes the building itself and any land attached to the building. Property refers to any building (house, office building, warehouse, factory, hall, shop, auditorium, etc.) and/or any land attached to the building (compound, garage, garden, car parking space, playground, gymkhana, etc.). There are many intricacies and types of house property which is calculated in different ways. Tax ability may not necessarily be on actual rent or income received. If the property is not let out, the tax will be charged on the potential income the property is capable of yielding.

why resurrect a dead thread????

davidmcn

csgohan4 wrote: »

why resurrect a dead thread????

Because they're a prospective spammer trying to up their post count.

Victor_the_Gink

lisa_edward_swan wrote: »

HI

Income from house property is defined as the income earned from a property by the assesses. House property includes the building itself and any land attached to the building. Property refers to any building (house, office building, warehouse, factory, hall, shop, auditorium, etc.) and/or any land attached to the building (compound, garage, garden, car parking space, playground, gymkhana, etc.). There are many intricacies and types of house property which is calculated in different ways. Tax ability may not necessarily be on actual rent or income received. If the property is not let out, the tax will be charged on the potential income the property is capable of yielding.

Are you based in the UK?