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Tax on a property rented out

(31 Posts)
LifeBeginsNow Fri 14-Feb-20 14:29:01

Forgive my ignorance but I am having a right week of it when it comes to HMRC. Firstly I found out I have to repay much of my child benefit entitlement for the last 2 years as I'm a higher rate earner (didn't know this was the case) and now I've realised I've not done anything/ looked into property tax for renting out my house.

In my defense, I have been and continue to be very ill and I have totally dropped the ball on this but after flapping at the tax office yesterday about the child benefit, I had an email this morning at 1am from HMRC instructing me to take a course about understanding property tax.

I will do this but can anyone assist in an approximate figure of what the tax will be please? I recieve around £825 a month which is about £50 a month shy of the mortgage payment.

roarfeckingroar Fri 14-Feb-20 14:29:52

It's absolute theft OP but yes you have to do a self assessment. Bane of my life.

BrightonBB Fri 14-Feb-20 14:37:35

There are some good YouTube videos if you google along the lines of HMRC property tax that help explain what you can and cannot claim.
You will definitely need to do self assessment and should probably already have been doing.
It would be worth seeing a tax accountant to help do your first self assessment but after that you can probably complete it yourself online.
Don’t get on the wrong side of HMRC.

glitterbiscuits Fri 14-Feb-20 14:40:19

Could you post the link about the property course please OP? We are about to rent out our place. Thanks

GallusAlice79 Fri 14-Feb-20 14:43:09

Is the mortgage payment interest only or capital and repayment?

GallusAlice79 Fri 14-Feb-20 14:44:22

What expenses do you have like: letting agent, insurance etc.

Have you had to do any work to the property?

LifeBeginsNow Fri 14-Feb-20 14:45:42

Ah I am even more scared now! The only reason we moved was because of my health and to not have the worry of paying a mortgage. It was never intended as a money making thing. Just as I was starting to get my finances back on track I get two bits of rubbish news!

The link is

If you look at it before I do, let me know how it is.

LIZS Fri 14-Feb-20 14:46:27

The way "profit" on rental income is calculated has changed in past few years. Is it a repayment or interest only mortgage, do you use an agent, have maintenance contracts etc? The SA paperwork explains how to do so. It will be calculated at higher rate as income though.

tigger1001 Fri 14-Feb-20 14:49:26

It's only the interest element of a mortgage that would be allowable and even that is no longer all allowable as an expense. That is being phased out and replaced with a tax relief which essentially restricts the relief for mortgage interest at basic rate

loveisagirlnameddaisy Fri 14-Feb-20 14:52:25

Property tax law changed significantly in 2016. The ability to claim relief on mortgage interest is being restricted over four years (we're currently in year 3 of 4) for higher rate taxpayers.

You can claim all reasonable expenses such as agents fees, insurances, maintenance costs.

If you are renting at £825 and the mortgage is £775, you used to be able to deduct one from the other (assuming the mortgage was interest only), deduct other expenses and pay tax on the rest at your prevailing rate. Now you have to treat mortgage interest separately - you can deduct part of it (currently 25%) and you then get a tax rebate of 20% on the rest. So, if you're a 20% rate taxpayer, the tax changes effectively don't apply.

LifeBeginsNow Fri 14-Feb-20 15:04:45

The mortgage is capital & repayment. Does that make a difference (in a good way)?

LifeBeginsNow Fri 14-Feb-20 15:08:25

I'm trying to reply but it's not highlighting any names (I've moved away from using the app as it's poor).

No work to the property except a plumber to fix a screw which cost about £50.

I paid a full years building insurance and to be honest I'm not too sure about fees but I can double check. We are on a guaranteed rent scheme so we will always get the same amount per month but as a result, we dont get as much money as we could have. Basically the letting agent takes the rest. There was also a charge during the first month for setting things up.

BullshitVivienne Fri 14-Feb-20 15:10:09

My property tax was just shy of £1000 this year, renting out a property for £600, which is managed by an agency.

LifeBeginsNow Fri 14-Feb-20 15:11:28

Just to clarify, we get £825 a month but the capital and repayment mortgage is about £892 (£66 difference).

GallusAlice79 Fri 14-Feb-20 15:14:34

Not really unfortunately. You need to work out what you make from your house each month by taking expenses away from rent. Ignore the mortgage for the time being.

Multiply that figure by 12 (months). From that figure, work out what 40% of it is (assuming you're a HRT from child benefit issue). That's figure A.

Separately, multiply the interest portion of your mortgage by 12, then work out 20% of that. That's figure B.

Take B away from A = the tax you owe.

nicknamehelp Fri 14-Feb-20 15:17:37

why dont you find an accountant who can do the returns for you then you know been done correctly. As capital repayments for starters dont get taken into account. Interest might. but any insurance, letting fees repairs do.

jackstini Fri 14-Feb-20 15:26:24

Is this for 2018/19 tax year?

If so you are allowed to take 50% of the interest part of the mortgage only as tax relief

So as an example £800 rent
Mortgage £600, £400 is interest
£800 - £200 = £600 profit per month
You would owe tax on £7200 at 40% so £2880

You can also claim the plumbing expenses & letting agent fees plus nominal £3 week office expenses plus mileage to take care of property if relevant

As this one doesn't seem complex expenses wise I would do your own tax return rather than pay an accountant

Am a landlord so happy to advise if you have any other queries

tigger1001 Fri 14-Feb-20 15:31:29

As it's a capital and interest mortgage ask the bank for a mortgage statement for the tax year you are looking at. This should break down the capital and interest payments so you will be able to take it from there

LifeBeginsNow Fri 14-Feb-20 15:35:13

It will be for 2019/2020. I'm getting mixed up with the child benefit issue which is 2018/2019.

I think I'll look at the course and read the links above and if I really cant get my head around it I will go down the accountant route.

However, now you've just reminded me we are talking about 2019/2020, when do I actually need to fill out the forms after April 2020? Presumably I've got time to sort this.

Last question, does the tax office expect a lump sum or can I arrange to pay monthly?

viccat Fri 14-Feb-20 15:37:38

The actual percentage also depends on how much tax you pay on your other income i.e. if you're in the basic or higher rate tax bracket. If you don't have other income, then your personal allowance for the year probably means no tax will be due. If you're a basic rate tax payer then it's 20% of the profit. Lots of advice above already on how to calculate that.

sweetheart Fri 14-Feb-20 15:41:30

I would get it out of your head that you won't own much tax because the mortgage is nearly as much as the rental income because this is not the case at all. As others have already said only a % of the interest part of the mortgage is allowed to be deducted from the rental income to reduce your tax liability. You could have a fairly large bill of a couple of thousand pounds per tax year coming your way I'm afraid.

jackstini Fri 14-Feb-20 18:32:08

You've got plenty of time OP
If you did not start renting out your property until on or after 6 April 2019 you have until 31 Jan 2020 to file your return for 2019/20

I would start putting an amount away each month from now to cover it

jackstini Fri 14-Feb-20 18:32:37

31 Jan 2021 I mean!

mencken Fri 14-Feb-20 18:39:08

bit confused - are you registered online with HMRC? That's where you need to start. As noted you have bags of time but get the ball rolling.

allowable expenses are agents fees, insurances, some fixes and some maintenance. Don't forget gas safe in this.

I hope you don't just have building insurance - you should have buildings, landlords contents, rent guarantee, malicious damage, legal expenses and possibly landlord home emergency.

Lightsabre Fri 14-Feb-20 19:05:42

What approx date did you start renting the property? It doesn't sound like you're very clued up about rentals and tax so it's much easier to use an accountant. They cost around £300 to prepare the accounts and work out your tax liability. Without knowing your income from other sources it will only be a guesstimate from posters here.

Please get clued up quickly on your legal responsibilities as a landlord if you're not that aware.

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