We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Rental Income Tax Minimizing

Brighty
Posts: 755 Forumite
in Cutting tax
Hi guys
I'm about to let out my house and need a little advice on minimising the amount of extra income tax i pay.
House is currently owned by myself and my brother, he now lives in Germany, and i'm moving up north into a rented flat to make sure the move is a good idea, will eventually buy up there all being well.
House is worth approx 250k with 77k left on a 100k mortgage.
Rental income will be 12k per year
House will be part furnished (mainly kitchen as i don't need it, washing machine, tumble, fridge, freezer as well as a oven & hob)
As my brother lives in Germany and is not a UK tax payer, is the tax burden halved?
I understand that i can write off certain expenses such as buildings insurance etc. Also there is 10% wear&tear on furnished places, is this 10% of the whole 12k rent?
I understand i can write off the mortgage interest, when i buy in a years time, would it be better for me to mortgage the current house to the max and release equity to have a smaller mortgage on my new place?
Any help much appreciated
Cheers
Brighty
I'm about to let out my house and need a little advice on minimising the amount of extra income tax i pay.
House is currently owned by myself and my brother, he now lives in Germany, and i'm moving up north into a rented flat to make sure the move is a good idea, will eventually buy up there all being well.
House is worth approx 250k with 77k left on a 100k mortgage.
Rental income will be 12k per year
House will be part furnished (mainly kitchen as i don't need it, washing machine, tumble, fridge, freezer as well as a oven & hob)
As my brother lives in Germany and is not a UK tax payer, is the tax burden halved?
I understand that i can write off certain expenses such as buildings insurance etc. Also there is 10% wear&tear on furnished places, is this 10% of the whole 12k rent?
I understand i can write off the mortgage interest, when i buy in a years time, would it be better for me to mortgage the current house to the max and release equity to have a smaller mortgage on my new place?
Any help much appreciated
Cheers
Brighty
0
Comments
-
You will only declalre your half of the rents and you can set your mortgage interest against your share, together with insurance and any repairs. If you are letting through an agent, you can also deduct the agents commission. It would be better to use the loan to buy the let property as you will get relief for the interest paid. The property is not let furnished (A few white goods is not furnished) so the 10% W&T allowance is not due.
If the property is being let through an agent, the agent will be responsible for retaining your brothers share of the tax on the rent unless he can get a ruling that he will have no UK tax liability on his share. If no agent is involved, the tenant will withold the tax on the rent again, unless he can get a ruling that no tax is due.£705,000 raised by client groups in the past 18 mths :beer:0 -
Hi
Cheers for that, helped a bit i think, lol.
So to clarify, we could get another 120k mortgage on the house, pocket 60k each to use as deposits on our own new properties to live in, thereby reducing our personal mortgages, while increasing the one on the let property enough to offset all the the rent, leaving a tax bill of zero? Is that correct and a wise thing to do? Also. if that is the case, could we borrow more to have a higher mortgage interest than the rent, would this then reduce my personal tax bill as a self employed via ltd company design engineer?
Also, i'm a bit confused with what you said about my brothers half of the tax, looks like we're not going through an agent as we may have found someone who wants to let it. What's my brothers tax liability got to do with the tennants, why would they 'withhold' it?
Cheers
Brighty0 -
No you can't do that for two reasons it doesn't matter which property the money is secured on its which property it was used to buy, so just because the mortgage is secured on your rental property doesn't meean yopu can offset it against the rental income, because it has been used to buy your primary residence, also I believe it is only the interest on the purchase amount that you can claim and not subsequent amounts secured against that property.
You say your brother is not a uk tax payer and so he must register as a landlord abroad, but he is liable to tax on income from his UK property and unless he gets an exemption certificate from HMRC then the tax must be retained at source,(sorry not quite sure how it finds it's way back to HMRC though).
If you were making a net loss on your rental property then yes that could be set against your income tax, not sure how you are running your limited company ,do you pay yourself PAYE or do you pay yourself up to your personal allowance and then take the rest in dividends, if the later then any losses from your rental could in effect be added onto your personal allowance before you paid any income tax,thus allowing a bit more money to be taken out from the company before corporation tax is applied.
If the former any losses would just be set against your income from employment.
With regards as to minimizing your tax, can you switch your mortgage to interest only(if it isn't already).0 -
Cheers chappers
I pay myself a minimal paye wage and take the rest as dividends.
We've not got an interest only mortgage at the mo, quite the opposite, we've been overpaying heavily for a few years with whatever we have, as it's been our only mortgage and made sense at the time. I assume by having an interest only, it will reduce our payments, allowing us to use the spare cash on our personal mortgages, while stopping the interest and therefore amount we can offset gradualy decreasing as it would with a repayment?
I may have to get my accountant to look into this for me, it's all getting a bit beyond my understanding, lol, as i read somewhere on here that i can offset the mortgage, so am now not sure, i've come up with an example in my head that makes it sound to me that i should be able to.
Imagine i live in a fully owned house
I get a mortgage and buy a new house with it, with a view to renting one out.
If i stay where i am and rent out the new one, i can offset the mortgage interest.
If i move to the new one and rent out the old one, i can't offset the mortgage interest.
That is effectivley what you are saying, and that doesn't sit right to me.
It also seems insane that i should have to say to the tennants "oh by the way, as my brother lives in Germany, you get £100 a month off the rent, but you have to send it off to the IR at the end of the year or he'll get in trouble, make sure you do now!" It's so crazy it's probably true.
Brighty0 -
Two important points.
The mortgage interest is an allowable expense of your letting business. The amount of mortgage interest to be allowed as an expense is restricted to the value of the property at the time you started letting it.
So if you had a property worth 200k when you started letting it, with a mortgage of 100k and then bought a home for yourself with a mortgage of 150k, the total amount allowed as an expense of the mortgage business is the interest on 200k. It doesn't matter where it is secured. Also, it is the interest only, not capital repayment. You can get annual mortgage statements from your lenders which will show the amount of interest you have paid.
If you make a net loss, the losses are included in your tax return and are carried forward to future years. As rental income is deemed to be unearned income the losses cannot be used to reduce your tax bill on other income/ dividends.
I don't know the exact rules for overseas landlords, but I would have thought you could collect all the rent and send the revenue the amount due from your brother. You cannot expect tenants to send two rent payments each month and you wouldn't want to ask tenants to send a portion to the revenue.I'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.0 -
The brother needs a cert under the non Resident landlords scheme.
http://www.hmrc.gov.uk/cnr/nr_landlords.htm
His rental income is likely to be covered by his UK personal allowance.
Your half of the mortgage would be offset against your half of the letting income.
See your accountant about the best way to sort a new mortgage under these circs.Trying to keep it simple...0 -
Ah of course, my brother has his personal allowance, so he will not owe anything after we offset the mortgage interest, forgot about that, just need to sort that cert out. So it's just my half we really need to worry about. for the next year i'll owe some as our current mortgage will only offset about 4.5k of the 12k income, leaving around 7k after other expenses. So i'll be liable for tax on half of that. Then once i buy a new place the extra mortgage should offset nearly all of it. Sorted
Thanks alot guys, i think i have it sussed in my non-accountant head now. I've emailed my ltd company accountant to see if they can give me some advice about it all, if not i'll find one who will.
Cheers again
Brighty0 -
you can't forget about your brother's tax regardless of whether the mortgage interest will reduce the rental profit to an amount whereby his PA will cover any tax due.
Legally, the tenant or letting agent MUST withhold tax at the basic rate when they pay the rent to you/your brother.
BTW I would see a tax advisor, not an accountant.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 351.3K Banking & Borrowing
- 253.2K Reduce Debt & Boost Income
- 453.7K Spending & Discounts
- 244.2K Work, Benefits & Business
- 599.4K Mortgages, Homes & Bills
- 177.1K Life & Family
- 257.7K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.2K Discuss & Feedback
- 37.6K Read-Only Boards