Universal Credit - what are allowable expenses on a second property and how to report rental profit?

EnidSut

Hi, 
I am a single parent to school age children and care for my elderly mother who has a chronic health condition. 15-years- ago I was advised to buy a rental property on a buy-to-let mortgage as my earnings are very small and I have no pension. I have claimed Tax Credits and Working Tax Credits over recent years but have now been migrated to UC. I understand the rules on equity and if you have over 16 K you can't claim beyond transitional period. What I am confused about and getting conflicting advice from UC is how to regard and report rental income and which expenses on rental profits are allowable?  One advisor told me that the allowable expenses are the same as current tax structure - i.e. you cannot deduct mortgage interest from rental profits, whereas another advisor told me I should deduct them. I can't find any written advice.

Also does anyone know whether I report rental profits as income when I report my montly earnings via 'My Journal', or do I report them at the end of the year to be added to my existing capital in the property?  I have looked on HMRC website on this and I CAN find information about tax rules on rental profits but I can't find anything written down about allowable rental expenses from Universal Credit POV.   Many thanks

Alice_Holt

Any income from savings, assets and investments (for example, interest on savings, rent you receive from properties you own or dividends from shares) is considered to be 'capital'. 

Reg 72(3) of the Universal Credit regs 2013 states:
" Where a person's capital is treated as yielding income, any actual income derived from that capital, for example rental, interest or dividends, is to be treated as part of the person's capital from the day it is due to be paid to the person."

It's not to be reported as income, despite what the (UC ?) advisers may have told you.

AFAIK any expenses incurred in renting out the property would not be taken into account when assessing your capital. 

I'm unsure how this treatment might affect your 12 months transitional protection. It could depend on how much your capital was when your UC claim started.

Yamor

As Alice says, the rental income doesn't count as income for UC.

The income will just increase your capital from the date it is due.
In practice, this will be net of expenses, in one of two ways:
- If you pay the expenses separately to receiving the income (common in cases where there is no managing agent), then as and when expenses are paid, your capital is reduced, and as and when the rental income is due, your capital increases.
- If the rent is received net of expenses (common in cases where there is a managing agent), then the "actual income" due from the property is only the net income due.

HOWEVER:

As you had over £16k at the point of your UC claim, all your capital over £16k is ignored for 12 assessment periods. This includes any increase in capital during those 12 APs (e.g. rental income). So, effectively, you can ignore the rental income completely, as for 12 APs it is ignored, and after 12 APs your UC entitlement will end anyway.

atlantis187

As far as I know you cant have a second property and claim UC unless its worth under 16K

Spoonie_Turtle

atlantis187 said:

As far as I know you cant have a second property and claim UC unless its worth under 16K

Transitional rules apply to those migrating from Tax Credits.

poppy12345

atlantis187 said:

As far as I know you cant have a second property and claim UC unless its worth under 16K

You missed this part in the first comment.

EnidSut said:

Hi, 
have now been migrated to UC. I understand the rules on equity and if you have over 16 K you can't claim beyond transitional period.

EnidSut

Thanks very much to everyone who replied.  This was very helpful - thanks. I have only just found  out how to access this thread as I;m new to MSE so apologies for slow response.