Income from rental

[smellyfeet]

We are just about to rent out a property that has no mortgage on it, we consolidated our debt and now only have 1 mortgage against our house and paid off the one we now plan to rent out.

Would we need to pay tax on the income from the place we are renting?

yes you need to do a tax return stating the gross income from the rent from which you can deduct running and maintenance costs, such as agency fees and service contracts. If it is jointly owned the income is assumed to be split 50:50 although you used to be able to reallocate it to make full use of both allowances , not sure you can now though. If you aren't currently or haven't lived in it in last 3 years you may become liable for Capital Gains Tax should you sell in the future

Thanks, that's really helpful.

Do you know if at any point you are no longer subject to capital gains tax? If we sold after 10 years, for example?

Sorry not sure, CGT system changed over the past few years. Liability used to reduce by year (taper relief) but not sure it does any more. You get an allowance annually which can be accumulated iirc.

Unfortunately, the CGT will always be payable. There are really only four ways to sell the house without having to pay CGT. 1)Sell at a price less then twice the CGT allowance (if jointly owned) so currently, £20,200; 2) Kick out the tenants and move back in yourself so it becomes your primary residence before selling it; 3) Make a loss with another investment that you can offset against the gain on the house; 4) Die. there is no CGT payable on death.

The CGT allowance is not cumulative, so if you don't use it one year, you lose it and taper relief is no longer available since the introduction of the standard 18% rate applied to CGT.

It might actually pay you to take out a mortgage against the house being let out as I believe you can offset the interest against the income thereby reducing any income tax liability. What you do with the money raised would be up to you - buy another BTL property maybe.