advise on tax credits etc for letting out house

AM1103

Hi there not sure what forum to post this in, so post on both renting and tax credit forums

Ive started to rent out my house, main thing is to free up money to allow my family to rent a bigger house (own house on 2 bedrooms, family have 3 full time kids and another 3 a couple of nights a week) The bigger house was a definite must and had found they right place, which i thought would be okay money wise. What i failed to think of was the impact on tax/working tax credits.

My wife called up to inform the tax credits people that we are renting out our old house and she's informed me today its wiped out all working tax credits and reduced tax credits. Which isnt too good as we depend on that money to get by.

My wife says she just told them the rental income we get, but im thinking that she should have told then the projected profit/income we would make, because obviously there are deductions to get made from the rental income, and the full rent isnt profit.

Thanks for any help and advice

AdrianC

AM1103 wrote: »

Hi there not sure what forum to post this in, so post on both renting and tax credit forums

Ive started to rent out my house, main thing is to free up money to allow my family to rent a bigger house (own house on 2 bedrooms, family have 3 full time kids and another 3 a couple of nights a week) The bigger house was a definite must and had found they right place, which i thought would be okay money wise. What i failed to think of was the impact on tax/working tax credits.

My wife called up to inform the tax credits people that we are renting out our old house and she's informed me today its wiped out all working tax credits and reduced tax credits. Which isnt too good as we depend on that money to get by.

My wife says she just told them the rental income we get, but im thinking that she should have told then the projected profit/income we would make, because obviously there are deductions to get made from the rental income, and the full rent isnt profit.

Thanks for any help and advice

Good luck, I don't think this is going to go the way you hope...

G_M

I freely admit I'm no expert on benefits (you may get better responses over there) but my guess is that they look at 'income' when assessing entitlment.

The tax deductable aspects of the business ar unlikely to apply to Benefits - but don't count on my advice in this.....

Have you asked the Benefits Office? Sureley they'd know......?

AM1103

I posted in benefits too, just waiting to see if anyone responds. looked on the hmrc website and it seems that way, unfortunetly i need to work alot and calling the tax office is a length call i just havent had the time to make, so my wife had called. I guess its just disheartening to see those benefits disappearing because its like we no longer need them. By the time the mortgage is paid, along with insurance and tax, we probably make less than 50 quid. The house we're renting is costing us £140 a month more, but now we've lost like £300 in working/tax credits. Looks like we'll probably be back to the old house after the leases are up.

kram

Keep all of your paperwork in order as hmrc may look more closely at rental income & dates when you come up for renewal next year, they will deduct future payments for any overpayment etc.

I hope you get things sorted going forward.

ProDave

Unfortunately, the rent income is treated as earnings, so as far as tax credits are concerned you are suddenly a lot better off. the fact the rent you receive just goes straight out to pay for where you are renting does not concern them.

Move back to your own house I believe is the only solution, your "income" will go down again and your tax credits should go back up.

completely bonkers system, but that's how it is I am afraid.

P.S you ALSO need to inform hmrc (within 3 months of starting) that you are now self employed as a landlord That will trigger a tax return at the end of the year if you do not already get one.

And if you are claiming any unemployment benefit, inform them and that's gone west as well.

gazzabboi

Look at the tax credits tables. For 3 kids it’s about 35k income max before they stop. So say you make 20k, wife makes 10k, rental income 5k, then it’s goodbye to tax credits. And rightly so, as you should be easily able to live on 35k without tax credits. Not the best year to become a landlord with the mortgage interest changes.

00ec25

ProDave wrote: »

the fact the rent you receive just goes straight out to pay for where you are renting does not concern them.

Move back to your own house I believe is the only solution, your "income" will go down again and your tax credits should go back up.

completely bonkers system, but that's how it is I am afraid.

you seem to be under some mistaken impression that just because the OP is themselves renting where they live, the income they get should be offset against the costs they pay for the roof over their own heads just because that roof is also rented? That is bonkers

I choose to spend my rental income on food, in your world that would mean I'd not pay tax on that income as I've spent it on a life necessity, just the same as if I'd spent it on paying for a roof over my head. Not how the world works, rental income is simply money from which tax has not been deducted. How you spend your income after tax has been deducted is irrelevant.

ProDave wrote: »

P.S you ALSO need to inform hmrc (within 3 months of starting) that you are now self employed as a landlord That will trigger a tax return at the end of the year if you do not already get one.

not quite, the rolling 3 months deadline was abolished long ago and it is not self employment. You are however required to notify HMRC that you have income from which income tax has not been deducted. You need to make such a declaration by 5th October following the end of the tax year (ie within 6 months of the previous 6th April) in which you received that money. If you miss that Oct deadline then you could be fined.

rental income is not self employment, it is rental income (ie its own category) and as a result you do not pay national insurance on your rental income

http://taxaid.org.uk/guides/information/an-introduction-to-income-tax-national-insurance-and-tax-credits/income-tax/it-is-your-responsibility-to-tell-hmrc-if-you-owe-income-tax

ProDave

00ec25 wrote: »

you seem to be under some mistaken impression that just because the OP is themselves renting where they live, the income they get should be offset against the costs they pay for the roof over their own heads just because that roof is also rented? That is bonkers
...

rental income is not self employment, it is rental income (ie its own category) and as a result you do not pay national insurance on your rental income

http://taxaid.org.uk/guides/information/an-introduction-to-income-tax-national-insurance-and-tax-credits/income-tax/it-is-your-responsibility-to-tell-hmrc-if-you-owe-income-tax

It was the OP that seemed to think they could rent out their house and rent another one for themselves without any tax credits or income tax liability. It was in fact me pointing out that is not the case.

Thanks for the clarification on rental income. I know it separately goes on the "land and property" section of a tax return but I thought you still had to notify hmrc first?