Tax on letting out our house?

cobbingstones

Hi

Would one of you shrewd characters advise on our situation please? Last year I was working abroad for 6 months and let our house out. We made around £6300 for the 6 months. However, the mortgage is £1277 per month which is more than what we received each month.

Basically what I need to know is:

a) Do we need to enter this in our 07/08 tax return, and

b) If we do, will our mortgage right off any tax liability.

Many thanks

Justin

chappers

a) yes you do

b) that all depends you need to take the £6300 then you can set against the £6300 your allowable expenses such as mortgage (interest only), any maintainance , costs of advertising , letting agents fees etc any suplus id your taxable profit and you pay income tax on that at the appropriate rate, or are due a refund if you made a loss.
Depending on your mortgage if it is interest only then you will be due a refund if it is repayment then it will be marginal as to whether you owe anything.

owitemisermusa

Is there usually a substantial difference between IO and repayment figures?
Wondering if you could save the difference each month and repay capital (within overpayment limits).

Also, does this mean the entire monthly IO mortgage payment is taxfree?

I hope this is helpful to the OP and he/she won't mind the 'butt in'.

Gorgeous_George

I believe that you cannot claim a refund for any loss. This can only be carried forward to later years.

There's also 10% of the rent that can be offset against income (£630) for wear and tear.

GG

silvercar

From your mortgage statements find the amount of interest paid on the mortgage. This is an allowable expense against the rental income.

As GG says, you carry forward any losses against future rental income, you cannot claim a tax refund as this is "unearned income".

tbs624

Items that you can offset against your rental income include the interest repayments (not the capital element) on your mortgage, and things like letting agency fees, maintenance & repairs (but not improvements), the cost of gardeners/cleaners, phone calls, stationery, advertising, insurance ( building/contents), cost of gas boiler servicing/certification.You would also need to work out your expenses pro-rata - ie you can only claim expenses directly relating to the period of the letting.

Google HMRC SA105 Land & Property Pages notes and the info is all there.

If there are 2 of you as owners, then AFAIAA HMRC will assume 50/50 ownership/tax liability unless declared otherwise, in advance, on the correct form, so you split both your profit and your expenses figures.

Remember that it depends which 6 months of the year you were letting the property - if it was from Jan to June inclusive, your rentals income should be split over 2 separate tax years.

I would agree with GG that as it's classed as investment income, my understanding is that there is no refund involved , only a carry forward.

My understanding is that the 10% wear & tear is on the *net* rental income figure after the payment of any utility bills that you may have paid out during the rental period.

owitemisermusa

Thanks a lot. But is the ENTIRE I/O amount offset against tax? ie £700/month interest only = £700/month less tax due?

EdInvestor

owitemisermusa wrote: »

Thanks a lot. But is the ENTIRE I/O amount offset against tax? ie £700/month interest only = £700/month less tax due?

All the interest paid is claimable as an expense.Repayments of capital are not claimable.

Gorgeous_George

You need to start with two columns. Name one income and the other expenditure.

In the first column list all income i.e., rent.

In the second column list all expenditure such as mentioned on this thread. Now subtract the total of column 2 from the total of column 1 to work out profit/loss.

If the result is a loss this can be carried forward to later years. Any profit is added to your annual income and taxed accordingly.

Either way, you will need to fill in a tax return so contact the tax office - sooner the better - it will put your mind at ease when you see how straightforward the tax return is.

GG

chappers

Gorgeous_George wrote: »

I believe that you cannot claim a refund for any loss. This can only be carried forward to later years.

There's also 10% of the rent that can be offset against income (£630) for wear and tear.

GG

sorry was being stupid I was totally aware of this,had my head still in an income tax thing I was sorting out.

cobbingstones

Hi All

Sorry for not replying earlier. Many thanks for your excellent help. It amazes me how people take time out of their busy lives just to help others they don't know. I hope I can be of help to you some day! Any problems with your Telephony Soft Switch, let me know ;-)

Cheers

Justin