Paying tax on rental income?

catsatonthemat

I'm considering renting out my flat as I'm one of the people trapped and unable to sell due to waiting on a cladding certificate and we need to move.
What I'm struggling to understand are tax obligations. The amount we can rent our flat out for is less than the combined mortgage and service charge cost. I understood that meant we wouldn't need to pay tax as tax is only due on "profit". However, we just met a letting agent who started talking about tax deductions and made it sound like we would have to pay tax on this entire income.

Can anyone give me a rough 101 or point me towards a good online resource?

Thanks!

Comms69

Uhm... im not paying off your mortgage for you... 

You pay tax on the entire income, less allowed expenses.

AdrianC

Like any business...
profit = turnover - expenses

There are some expenses which are allowable deductions, there are some which are not.
Mortgage interest may or may not be. Repayment of mortgage capital is not. Service charges are.

Thrugelmir

Only the interest element of your mortgage payment is tax deductible, the capital element isn't. 

whirlyhead

This: As of April 2020, you are no longer able to deduct any of your mortgage expenses from rental income to reduce your tax bill. Instead, you'll receive a tax-credit, based on 20% of your mortgage interest payments. This is less generous for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments under the old rules. The new system is being phased in over several years.
Letting out a property is a business, and you are expected to run it as such.  You need to keep track of all incomings and outgoings, as if HMRC audit you, and they will, you have to account for all finances.  It's best to have a completely separate bank account for rental properties.  Being a B2L landlord is not for the faint hearted, it's a lot of hard work for very little reward.  

[Deleted User]

catsatonthemat said:

I'm considering renting out my flat as I'm one of the people trapped and unable to sell due to waiting on a cladding certificate and we need to move.
What I'm struggling to understand are tax obligations. The amount we can rent our flat out for is less than the combined mortgage and service charge cost. I understood that meant we wouldn't need to pay tax as tax is only due on "profit". However, we just met a letting agent who started talking about tax deductions and made it sound like we would have to pay tax on this entire income.

Can anyone give me a rough 101 or point me towards a good online resource?

Thanks!

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

greatcrested

All the tax info you need is in the post and links above.

I simply add these links for other factors you need to consider:

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

Crashy_Time

whirlyhead said:

This: As of April 2020, you are no longer able to deduct any of your mortgage expenses from rental income to reduce your tax bill. Instead, you'll receive a tax-credit, based on 20% of your mortgage interest payments. This is less generous for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments under the old rules. The new system is being phased in over several years.
Letting out a property is a business, and you are expected to run it as such.  You need to keep track of all incomings and outgoings, as if HMRC audit you, and they will, you have to account for all finances.  It's best to have a completely separate bank account for rental properties.  Being a B2L landlord is not for the faint hearted, it's a lot of hard work for very little reward.  

Why would people do it in that case?

AdrianC

Crashy_Time said:

whirlyhead said:

Being a B2L landlord is not for the faint hearted, it's a lot of hard work for very little reward.  

Why would people do it in that case?

Because they're deluded, and can't see beyond their preconceptions to the facts and reality.

bris

Yes you need to pay tax, the capital isn't an expense and the interest is now negligible. You really need an accountant to advise you.

It's tough being a LL now, over the last 4 or 5 years they have chiseled away all the benefits of being one to the extent it's no longer worth it.

OP as an accidental LL like you are you will lose money. if you can't pay your bills with the rental income do not let it out. There is a lot more to being a LL than just sticking in a tenant and collecting rent. 

Crashy_Time

AdrianC said:

Crashy_Time said:

whirlyhead said:

Being a B2L landlord is not for the faint hearted, it's a lot of hard work for very little reward.  

Why would people do it in that case?

Because they're deluded, and can't see beyond their preconceptions to the facts and reality.

All of them?