Property rental while abroad

Madeinireland101

My daughter rented her property for a period of 6 months - January to end of June. She did it properly with a consent to let from her mortgage company and also a letting agent.

She now needs to pay any taxes due as the rental period is almost over and has asked me for help. I have a few questions which I’m hoping an experienced landlord may be able to help with.

1. As her period of rental was over two tax years I’m assuming she should treat this as two separate self assessment returns - one for last year and one for the current tax year which she would complete next year. Is that correct? Or is there an easier way forward?

2. As her expenses are more than likely more than £1000 for each period then I presume the £1000 allowance will likely be irrelevant?

3. How do you easily find out how much of her mortgage payments were interest as I understand you can only set that off as an allowable expense? Is it simply a case of asking the mortgage company?

4. What’s the best way of informing HMRC so that they can send a self assessment form out? (if they require it). Do we have to make a dreaded phone call with a long wait or is there an easier way?

5. If (for example) she decided that when she returned to the property she would like replace a carpet like for like can that be used as an allowable expense for the second year submission. The property will no longer be rented out but I’m assuming if she spotted some damage she could decide to change it at her expense for her future use. How to you make sure you don’t fall foul of the like to like requirement. How is it policed?

Thanks in anticipation...

Dazed_and_C0nfused

1.  Two tax returns

2.  Yes

3.  You can no longer claim mortgage interest as an expense.  She may well be able to claim a separate tax reduction linked to her finance costs but will need to get details from her lender as only the interest, not capital repayments, count for that.

4.  Register online
https://www.gov.uk/renting-out-a-property/paying-tax

Madeinireland101

Dazed_and_C0nfused said:

1.  Two tax returns

2.  Yes

3.  You can no longer claim mortgage interest as an expense.  She may well be able to claim a separate tax reduction linked to her finance costs but will need to get details from her lender as only the interest, not capital repayments, count for that.

4.  Register online
https://www.gov.uk/renting-out-a-property/paying-tax

Thanks very much. Yes I realise on 3 it’s only the interest. I perhaps should have called it finance costs. You have confirmed she will have to get the details on that from her lender which is what I suspected.

Do you have a view on whether 5 is doable? 

Dazed_and_C0nfused

Madeinireland101 said:

Dazed_and_C0nfused said:

1.  Two tax returns

2.  Yes

3.  You can no longer claim mortgage interest as an expense.  She may well be able to claim a separate tax reduction linked to her finance costs but will need to get details from her lender as only the interest, not capital repayments, count for that.

4.  Register online
https://www.gov.uk/renting-out-a-property/paying-tax

Thanks very much. Yes I realise on 3 it’s only the interest. I perhaps should have called it finance costs. You have confirmed she will have to get the details on that from her lender which is what I suspected.

Do you have a view on whether 5 is doable? 

It's Self Assessment so it's clearly "doable".

Whether it would stand up to HMRC scrutiny is another question.

Personally I think it's clearly not an allowable expense but these things aren't always black and white.

simon_or

3. My current lender shows the interest charged in a particular month on the online banking statement, so it might not need a phone call.

5. As I understand it, that cost would be considered a letting expense only if the property was intended to be let when the expense was incurred.

sheramber

As a non resident landlord her tenant should have been deducting tax from the rental
payment and forwarding it to HMRC unless she obtained permission for it to be paid without deduction of tax.

Madeinireland101

sheramber said:

As a non resident landlord her tenant should have been deducting tax from the rental
payment and forwarding it to HMRC unless she obtained permission for it to be paid without deduction of tax.

I presume you are referring to her being abroad. She was just there for a holiday and will be a tax payers in both years. I would imagine that would only be required if she wasn’t a tax payer and lived abroad. In any case that was not done so if really required she didn’t know and didn’t do.

_Penny_Dreadful

Madeinireland101 said:

Dazed_and_C0nfused said:

1.  Two tax returns

2.  Yes

3.  You can no longer claim mortgage interest as an expense.  She may well be able to claim a separate tax reduction linked to her finance costs but will need to get details from her lender as only the interest, not capital repayments, count for that.

4.  Register online
https://www.gov.uk/renting-out-a-property/paying-tax

Thanks very much. Yes I realise on 3 it’s only the interest. I perhaps should have called it finance costs. You have confirmed she will have to get the details on that from her lender which is what I suspected.

Do you have a view on whether 5 is doable? 

Mortgage interest, regardless of what you call it, is still not expense. Your daughter can claim a tax credit on her tax return for the mortgage interest but it is not an expense. 

5 is in no way shape or form a kosher expense on her tax return. If the tenant, during the 6 months they lived there, caused damage over and above fair wear and tear then your daughter was able to claim money for damages but not betterment from the tenant’s deposit. The idea that she is able to claim the cost for a a whole new carpet after letting the property for just 6 months is ludicrous. 

silvercar

Madeinireland101 said:

sheramber said:

As a non resident landlord her tenant should have been deducting tax from the rental
payment and forwarding it to HMRC unless she obtained permission for it to be paid without deduction of tax.

I presume you are referring to her being abroad. She was just there for a holiday and will be a tax payers in both years. I would imagine that would only be required if she wasn’t a tax payer and lived abroad. In any case that was not done so if really required she didn’t know and didn’t do.

Correct. Tenants deducting tax from rentals only applies if the landlord is living abroad.

badger09

Rules are here. Precise length if your daughter’s absence are important

https://www.gov.uk/tax-uk-income-live-abroad/rent