Tax on rental income

Fionnuala_2

Hello All

Hope some of you can help. I am looking to relocate within the UK, possibly for just a year or so to test the waters...then maybe for the rest of my life (it's a love thing!). I own a property in NI and live in it now, but want to keep it as a pension generator in my old age. In the meantime I would rent it out and use that cash to pay the rent in the town in England I am moving to (and depending on how things go might buy there later) I don't have a mortgage - so how much tax on the rental income would I be due to pay, in percentage terms? This will help me work out what I can afford in England. Thanks in advance, look forward to hearing from you.

yonk

It's taxed like income so the same rates as PAYE but you can make deductions for expenses and you have to fill in Land & Property section of a self-assessment tax form.

Look at the Inland Revenue site or read a "How to rent your house out" book to make sure you understand the tax before proceeding - remember you will have 3 years relief from Capital Gains Tax as it was your principle residence, after that, you have to pay CGT if it goes up in value by the time you come to sell it.

foot_loose

Yonk have you got an investment property?
because rental income is passive income so how can it be taxed the same as incometax ???

deemy2004

Passive income?

Your rental profit (rental income net of expenses) is treated as taxable earnings.

http://www.inlandrevenue.gov.uk/pdfs/ir150.pdf

Han_naH

Oh and I believe you can subtract 10% from your gross rent for "wear and tear", and pay tax on the rest.

Fionnuala_2

Hello again! To clarify, the situation is that I have a house in NI with no mortgage, but am pining bad for England where I lived for almost half my life until very recently. I want to keep my house over here, and in the interim rent a place in England while renting out my NI house. I have heard that if you buy a house and rent it out you only have to pay income tax on any part of the rent that is in excess of the mortgage repayments. Now don't laugh, but if I use my NI rental income to pay my England rental outgoings do I have to pay income tax on all the NI rental, or just what's left after paying rent on the English place. Bet half of you are laughing your socks off now...but you never know, the answer might be in my favour! If I were to later buy a flat or house in England while still renting out my NI house, what then for the tax due on the rental income?

By the way, I had a look at the Inland Revenue site and there was so much information to plough through! And not all of it relevant...was going to print it off and look at it later, but noticed it was over 100 pages long...excellent bedtime reading but what a waste of a tree, not to mention my toner.

Leejp, I hope you're right about the 10%, every penny will help.

Thanks again everyone for the replies.

Han_naH

Chuckle. You can claim the INTEREST on a mortgage ON THE RENTAL PROPERTY against tax, not another property you care to nominate!

Note this is the INTEREST, not the full payments if you have a capital repayment mortgage on the NI property.. Only the interest part.

Your residential property in the UK is unrelated to your investment property in NI.

Also, if the mortgage on the NI property is a residential one, the lender is supposed to be told if you rent it out.

They may adjust the interest rate (upwards!) or can even cancel the mortgage, meaning an expensive remortgage.
The answer? Don't tell them if the mortgage is small and you intend to pay it off soon.
Do note however, that THEY hold the title deeds and have the primary interest in your NI asset, so you must respect this. If the property burned down, are you insured? Think it through.

MarkyMarkD

Chuckle.  You can claim the INTEREST on a mortgage ON THE RENTAL PROPERTY against tax, not another property you care to nominate!

That's not quite true. You can claim the interest on a loan you use to fund the purchase of a rental property. That loan may be secured on the rental property, secured on something else, or not secured at all.

I don't think it helps in this situation, though. There's definitely no offset of the rental income and rental expense, and borrowing to buy a house in England would similar be unrelated to the NI property.

Bamf100

Dear FTS,

The rent you earn from the NI property is classed as unearned income, so you will still pay income tax on it at the current rates.

As most of your replies have said I don't think you will be able to offset any of your tax liability on the NI rented out property against any rent you then have to pay on a UK property.

It is always worth speaking to a financial advisor in any case like this and indeed the Inland Revenue, but do it in person face to face as the Inland Revenue website as you have discovered is 98% useless with the 2% relevant to your query buried deep inside.

The easiest way is just to accept it and pay the tax. You should still be able to rent a place in UK with the rental income from NI, even after Mr Brown has fleeced you!

If you do rent the NI place the Self Assessment and Land & Property pages you will need are in the 2% useful stuff on the Inland Revenue site and can be done quickly and easily online.

Regards

Kenny B

Fionnuala_2

Hi All

Thanks for your replies, am impressed so many people are clued up on income from property.

It looks like I will be paying tax on the full whack, but as Kenny B suggests I think I will go and see a financial advisor and/or an inland revenue bod to try and get the most tax efficient set up as possible.

I don't expect to move for a few months so I have a bit of time to get all this organised.

Thanks again.

FTS