TAX on rent

col81

I rent my home out to a family member at a loss. Mortgage £525 and rent i get is £400. This is all they can afford. What element of tax should i pay or not pay? i earn £45k per annum in my normal job 

DullGreyGuy

col81 said:

I rent my home out to a family member at a loss. Mortgage £525 and rent i get is £400. This is all they can afford. What element of tax should i pay or not pay? i earn £45k per annum in my normal job 

Is the £525 on a repayment mortgage or interest only?

Assuming its a repayment mortgage then you aren't necessarily at a loss... the capital repayment isn't part of the profit/loss

theartfullodger

You should declare under self assessment and pay whatever HMRC's online systems tell you to.

Only interest of mortgage is relevant.  And other valid expenses e.g. insurance, repairs claimable.   NB a landlord may pay more than 10 taxes. e.g. CGT when you sell ..

Family member unlikely to be able to claim HB or UC/HE as non-commercial rent. Unwise approach.

When did tenancy start - after 6th April 2023?  If not SA return required by 31/1/2024.

Google "nearly legal section 21" to see what paperwork you need to he able to evict.

Done ANY training in how to be a landlord please? Usually cheaper than the alternative.

So with renting out your home to them, where do you live please?

Very common advice is never rent to friends or family - very quick way to ruin relationships 

HOW is rent paid -eg cash, bank transfer, standing order,

BoGoF

The amount of mortgage payment is irrelevant to calculating any taxable profit - you may get a 20% tax credit on any interest element to be set against the tax due on the letting income. Suggest you do some research on what expenses you can claim - https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/allowable-expenses-and-allowances-aKT7h4c8jJta

SeagullFTB

As you are renting to a family member, who is a connected person to you, the rental income is "ring-fenced". This means that you cannot charge them below market value rent to create a loss and any expenses claimed are limited to the amount of income received.

If they are paying you £400 per month (£4,800 per year), this keeps you below the higher rate tax rate when combined with your £45k salary. You should declare the £4,800 income minus any expenses incurred for the property excluding the mortgage (i.e. maintenance costs, landlord insurance etc...).

You can then claim 20% tax relief on any interest paid on the mortgage. This is capped at 20%, regardless of what tax rate you pay at.

If the £525 mortgage is an interest only payment, you won't have any tax to pay. But should still complete a tax return to ensure everything is declared correctly.

If the mortgage is on a repayment basis, you may have some tax to pay depending on the interest element. For example, if the mortgage is the only expense incurred and you pay £1,800 interest in the year:

Property Income - £4,800 x 20% tax = £960
Mortgage Interest - £1,800 x 20% = £360 tax relief
The balance of tax to pay would be £600.