House renting tax question....

Sparks33

Hi all, I hope someone is able to help me with this question....
I am considering taking out a mortgage on my existing home, (85% ltv) in order to purchase another (to live in), because i am unable to sell my existing home at the moment. I then plan to rent out my existing house for about £600 a month. This will part fund the £850 likely interest payments on my loan.
My question is, will i have to pay any tax on this rental income or will it all be offset by the mortgage interest payments? I rang the inland revenue who told me that i will have to pay tax on the rental but a local accountant has told me otherwise. Can anyone clarify this for me? Thanks...

emma_nottingham

Hi sparks33,

As i understand it you can offset your mortgage interest payments from your tax bill but not any capital repayment. Also you can offset any cost incurred in the maintenance of the rental house. I would advise appointing an accountant to assist you. They only cost about £300 a year but could save you a fortune in tax by ensuring you get what your entitiled to.

Sparks33

Thanks Emma :-)
Can anyone else confirm this? Have to be completely sure as i'm about to commit to a massive mortgage which will only be viable if i can rent my house out without being taxed on the income...

beingjdc

This is correct. Any part of the rent which is less than the mortgage INTEREST can be offset. I'd be worried about doing this if 20% makes the difference between viable and unviable though - you might have no tenant for a while, or bad tenants...

Sparks33

It is tight because i'm borrowing more than perhaps i should. 20% tax on rental isn't a great deal i know, but for the first year i really am going to be counting the pennies. I am concerned about gaps with the rental but I've been told by local agents that there's huge demand for rental property so i'm banking on getting good tennants! I'm gonna have to read up on being a landlord because it's not something i've done before....