Renting house - tax implications

orange86

I'm looking to place my house on the rental market as  i lost my job and currently burning through my savings.

I have 3 bed detached house and the estate agent thinks upper rental income of £1,400pcm but might have to drop down if we dont get tennants.

My concern is landlord tax. I'm paying £800pm for residential mortgage offset by bank interest  charge of c£450. 

Is the tax deductible only 20% of  interest on c£450 ?

I need to understand if this will arrangement will provide me enough  net income to cover my mortgage, after paying tax.

I'm also looking to place some furniture in storage which will be an extra monthly cost.

Hoenir

You'll need to inform your lender. There might be an interest loading imposed. 

Keep_pedalling

Where are you planning to live?

sheramber

Yes you can only get a tax credit of 20% of the interest charge. 

You also have potential CGT to pay  when you sell the house. 

orange86

@Hoenir I am completing 'Consent to Let' form and will cost me £120pa with my bank.

@keep_pedalling at my parents house

@sheramber - this is quite cruel on people with residential property that want to rent it out for a period of time!!

I need to do my workings to see if it will cause me to be in a loss after paying HMRC !!!

AlexMac

It’s a bit tight;  assuming an average £14-15k pa rent income (as you’ll have to allow for the odd month or two void between tenants) and the best part of £10k pa mortgage that’s only £4-5k slack each year. 

By the time you pay out the inevitable grand or two for maintenance, gas safety checks and agents’ fees (unless you’re confident enough to select, vet and reference check tenants, issue ASTs, sort deposit protection and maintenance yourself), you’re only a few grand ahead. Especially if your lender jacks up the mortgage rate?  (I assume you’ve researched landlord obligations via the sticky, above? I do all that legal and practical stuff myself, but I’ve had 25 years at it!)

As you say, 20% of the mortgage interest is offset against tax, but if you really ain’t earning anything else, you’ll barely pay tax anyway as this is only levied on profits after the other allowable expenses above are taken off rent. So unless you have other earnings you’ll be lucky if profits exceed the £12.5k nil rate band. 

CGT won’t be a big issue unless you let it out for years as you’ll benefit from the primary residence relief for the period you’ve lived there. 

Maybe the most significant saving will be on utilities and Council Tax, as the tenants will pay these (although you might feel you have to contribute to these elsewhere if you live with someone else rather than rough sleeping?) We spend a couple of grand a month on these. 

And you could end up with unexpected bills (I’ve had to replace boilers in every place I’ve ever owned over the past 50 years, including three letting flats and a couple of second homes). Or worse, problem tenants or bad debts (not that I’ve ever experienced this). 

So do the research and run the numbers.  And maybe think of the alternative option of a couple of lodgers at £500-700 a room per month?  More intrusive but legally simpler and easier to get rid of. ( my granddaughter can only afford the rent on her place ‘cos she has a lodger). And finally, what if you want to live with a partner or spouse in future?  

Hoenir

Is the £120 the fee to process the CTL application or the full charge ? 

propertyrental

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?

all from:

https://forums.moneysavingexpert.com/discussion/5180214/tenancies-in-eng-wales-guides-for-landlords-and-tenants/p1

Albermarle

I'm looking to place my house on the rental market as  i lost my job and currently burning through my savings.

In theory at least it would be easier just to get another job? Is it particularly difficult in your line of work /area?

There are nearly One Million vacant posts in the UK. Of course they are not all good well paying jobs, but in general the jobs market is still quite short of people.