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What tax do we have to pay on a rental property?
Fredolow
Posts: 34 Forumite
Hi everyone. Hoping someone can help me with this. Our house (our only house) has been on the market for over a year. We had two offers on it during that time which both fell through due to the interest rate hikes and potential buyers losing their mortgage agreements. We've held on for as long as we can but now we have to move due to work, and we can't have our house vacant so we have to let it for the time being to cover the mortgage payments until the market improves sufficiently that we feel we may have a chance of selling it again. Not ideal for us but the situation has been forced upon us. Anyway. That's the background and I have a couple of questions as this is the first time I have let a property:
1) My wife and I jointly own the property, so for tax purposes do we have to split the rent income 50/50 or can just one of us declare it i.e. the one currently in the lowest tax bracket income-wise?
2) Can we offset our rental income against our mortgage payments on the property, or do we have to declare all rental income to HMRC? As it stands it looks like the rent we will be getting will just about cover our mortgage, especially if we add in other expenses i.e. house insurance.
I'd really like to know just what the tax law is around this as it's unfamiliar territory for us. Hoping someone here can offer some clear guidance. I should perhaps add that we were looking to buy another house after we sold ours but now we can only afford to rent, so we will still only own the one house. I'd prefer not to have to let at all but we simply can't survive without having the rental to cover the mortgage.
TIA!
Fred
1) My wife and I jointly own the property, so for tax purposes do we have to split the rent income 50/50 or can just one of us declare it i.e. the one currently in the lowest tax bracket income-wise?
2) Can we offset our rental income against our mortgage payments on the property, or do we have to declare all rental income to HMRC? As it stands it looks like the rent we will be getting will just about cover our mortgage, especially if we add in other expenses i.e. house insurance.
I'd really like to know just what the tax law is around this as it's unfamiliar territory for us. Hoping someone here can offer some clear guidance. I should perhaps add that we were looking to buy another house after we sold ours but now we can only afford to rent, so we will still only own the one house. I'd prefer not to have to let at all but we simply can't survive without having the rental to cover the mortgage.
TIA!
Fred
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Comments
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You can only claim the interest part pf you mortgage repayment as a tax credit at 20% against your tax payable.
https://www.gov.uk/renting-out-a-property/paying-tax
Have you researched the requirements to become a landlord and the certificares you need to obtain?
Profit would be split 50/50 unless you sign a deed allocating a different split and complete form 17 to send to HMRC. This must be done before you let the property as it takes effect from the date it is domne.
https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17
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For tax purposes you can split the beneficial interest any way you wish so if the rental would push one of you into a higher rate or you were already in that position you could split it 99 to 1. You will need to inform HMRC using form 17.
https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17You can’t offset any mortgage capital payments against your rental income, and there have been changes interest portion works.
https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-aHQIA2d4bjXj
You will also need to get permission from your mortgage provider convert from a residential mortgage, and there a a pile of responsibilities you will have as a landlord so do your homework before jumping in to this.0 -
Thank you both for your reply and for the links. That's very helpful. We've engaged a Letting Agent who is helping us through all of the requirements. Our property is in Scotland so the rules are slightly different up there (or so I'm led to believe).
We're joint owners of the property and our investment is pretty much 50/50. As I understand it, having a quick read of the HMRC website re: form 17, unless we can show evidence that our beneficial interests are uneven then we can't change the split wrt rental income. Pity
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Do beware of over-reliance on letting agents. Some are very good, some are dreadful!. Remember, as landlords the buck stops with you!
Have you read:
Post 2: Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new tenant protection (2015) plus the Homes (Fitness for Human Habitation) Act 2018
Post 3: Deposits: Payment, Protection and Return.
Post 4: 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?
Post 5: Rent increases: when & how can rent be increased?
Post 6: Repossession: what if a LL's mortgage lender repossesses the property?
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?
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Think you've missed that it's in Scotland, so most of that doesn't apply.propertyrental said:Do beware of over-reliance on letting agents. Some are very good, some are dreadful!. Remember, as landlords the buck stops with you!
Have you read:
Post 2: Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new tenant protection (2015) plus the Homes (Fitness for Human Habitation) Act 2018
Post 3: Deposits: Payment, Protection and Return.
Post 4: 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?
Post 5: Rent increases: when & how can rent be increased?
Post 6: Repossession: what if a LL's mortgage lender repossesses the property?
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?
The Income Tax and Capital Gains Tax implications are all the same though (subject to devolved tweaks to the tax bands).1 -
We've gone with a very reputable and highly recommended Letting Agent that's been operating in our area for a very long time, so I think we've got that bit covered. Many thanks for the links though.0
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Ooops yes, through there's still some useful generic info.user1977 said:
Think you've missed that it's in Scotland, so most of that doesn't apply.propertyrental said:Do beware of over-reliance on letting agents. Some are very good, some are dreadful!. Remember, as landlords the buck stops with you!
Have you read:
Post 2: Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new tenant protection (2015) plus the Homes (Fitness for Human Habitation) Act 2018
Post 3: Deposits: Payment, Protection and Return.
Post 4: 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?
Post 5: Rent increases: when & how can rent be increased?
Post 6: Repossession: what if a LL's mortgage lender repossesses the property?
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?
The Income Tax and Capital Gains Tax implications are all the same though (subject to devolved tweaks to the tax bands).
This is useful resource for Scotland.
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