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Do i need to pay tax on rental income?

(24 Posts)
Numbthumbs Sun 31-Mar-13 14:01:13

Mortage is £305, rent is £450. Once letting agents takes their percentage we receive £385 so are £80 a month in profit.....should we declare this??
Im just wondering as we recently started getting tax credits and i dont remember being asked anything about other property.
There is no equity in the house, we are about £15k in negative equity which is the reason why we rent it out, we rent another property that we live in


LIZS Sun 31-Mar-13 14:08:03

You'll need to register for a self assessment income tax return. Once you have offset mortgage interest, any maintenance and fees you will probably fall not pay extra, but you need to declare all sources of income. Equity is irrelevant for income tax.

ReallyTired Sun 31-Mar-13 14:10:10

You need to fill out a self assessment form if you are a landlord and pay tax! Otherwise you could be jailed (or at least heavily fined) for tax evasion and benefit fraud.

"There is no equity in the house, we are about £15k in negative equity which is the reason why we rent it out, we rent another property that we live in"

That is irrevelent. You are making a profit on renting out your property and still have to pay tax. £80 per month a good profit margin for a rental property.

You can claim the interest of your mortage of your income, agent fees and maintaince expenses. Its important to keep any reciepts for maintaince.

DeafLeopard Sun 31-Mar-13 14:10:24

Like Liz said it does need to be declared to HMRC as the profit is income.

However if you have a clever accountant they may be able to structure things so that you make the minimum of profit - eg increase mortgage payments to match rental income etc <<disclaimer>> that may not be a valid example

nocake Sun 31-Mar-13 14:13:33

That's not a valid example as you can only offset mortgage interest against rental income. You can't offset capital payments. That means you'll have to work out each how much interest and how much capital you've paid each year. Your mortgage provider will be able to provide a statement showing the figures.

Numbthumbs Sun 31-Mar-13 14:18:32

Apologies, ive also posted this in chat.

um.....i am confused. If i speak to my letting agent will they be able to advise me? Its been let since july 2011 and as me and partner are separating im trying to get everything sorted, im moving back into it in august when tenants contract runs out.

I havent been earning since its been let as ive been on maternity leave so will it affect my partners tax? is it me who needs to declare it or both of us?

Numbthumbs Sun 31-Mar-13 14:22:31

(Maternity leave from a job where i only earn £120 a months so dont pay tax anyway)

LIZS Sun 31-Mar-13 14:24:02

Who owns the house ? If in joint names you can 50:50 the income so both are liable and need to self-assess. Chances are your share would fall within the annual Personal Allowance if you had few other sources of income (earnings, interest, beneifts) tbh if it has been let since 2011 then you should have already submitted the return for April 2011-12 and will need to do April 2012-13 before October (on paper) or January 31st (online). Think you need to give your tax office a call for advice.

Numbthumbs Sun 31-Mar-13 14:27:21

Its in joint names,i have earnt about £1000 a year for the last 2 years but my partner has earnt about £25k.
We are in trouble arent we...

LIZS Sun 31-Mar-13 14:29:32

Not necessarily . HMRC may decide that it isn't necessary in your case as your earnings were so low but p may still have to. I thought agents had a duty to inform HMRC anyway, but that may just be non-resident landlords.

Numbthumbs Sun 31-Mar-13 14:33:16

I think i will contact letting agent. Ive heard nothing from HMRC and ive been in touch several times about tax credits etc so they have our details.

I have honestly just been a bit naiive and not realised i had to pay anything as i had a thought in my head that we could receive £4250 or something and not pay anything. (it was only when a friend said i should check this that i thought i would mumsnet it grin)

LIZS Sun 31-Mar-13 14:34:47

Rent a Room scheme has about 4.5k allowance but that isn't your situation.

humblebumble Sun 31-Mar-13 14:37:25

You have lots of things you can offset against it. It has to be split 50:50 with your partner.

Mortgage interest
Payments to agents etc.
10% depreciation of rental value

You probably will find there isn't much left to be taxed on so you won't really get any tax. It is all spelled out in the tax information you will get sent. You may have to request it.

Also you can always call the inland revenue on a "no names" basis and get advice, I find them very helpful.

lottiegarbanzo Sun 31-Mar-13 15:33:35

Yes, you can deduct a lot of expenses - even your travel there, phone calls, advertising.

You'll need to read through the guidance notes carefully and just work through the categories. Is it furnished? There's more to deal with if so, depreciation, capital expenses etc but if unfurnished it's more limited.

PollyEthelEileen Sun 31-Mar-13 15:43:33

You deduct everything - so mortgage, estate agent fees, buildings insurance, repairs...

If you are in profit, you are liable for taxes.

Lonecatwithkitten Sun 31-Mar-13 19:22:45

It is your job to contact HMRC to tell them that you may need to pay tax on this money not theirs to find you. You should have filled in a tax return for 2011 to 2012 already with any tax due to be paid by 31/1/13. So you could be due a fine, however, the longer you leave it the tougher they get so the sooner you phone and admit your mistake the smaller the likely cost.

Corygal Sun 31-Mar-13 19:26:36

Yes you do. Fess up now and it will cost you less.

Chandon Sun 31-Mar-13 19:29:06

Does not everyone have a tax free allowance of £8105 a year ?

lottiegarbanzo Sun 31-Mar-13 19:43:44

Yes but earnings or benefits will count against that first.

The self assessment on-line forms are quite helpful because you just plug in the numbers (once you've worked out all your deductions, profit and so on) and it adds it up in the right order for you.

Gregssausageroll Mon 01-Apr-13 09:23:21

No, you do not deduct mortgage payments. Only the interest. You need to ask for a certificate of interest paid from the bank for the tax year.

BetsyBoop Mon 01-Apr-13 17:15:49

renting out a property

Xenia Mon 01-Apr-13 17:25:28

As said above it is very very unlikely any tax is due as the 10% etc above and all the other stuff you pay insurance repairs etc will exceed the £80 a month. However you are still supposed to write those losses on your tax return each year (deduct the mortgaqe interest - I assume it is an interest only mortgage) and you will have a loss. That loss can be used year after year until eventually you make a profit and thenyou set the loss against the profit - so if in 5 years you make a profit and the 5 before you made losses you add up the losses having claimed them on your tax return and set them against the profit you eventually make. If you do not register those losses on thet ax return you cannot so easily do that. In other words it could well pay you to complete a tax return.

SarahBumBarer Thu 04-Apr-13 15:03:45

The 10% is for furnished lettings. Is it let furnished.

You don't need a certificate of interest paid - your annual mortgage statement will split out the interest from the capital.

SarahBumBarer Thu 04-Apr-13 15:04:36

Should be: Is it let furnished???

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