Pay tax on rental property?

[blinkinblimey]

Sorry if this is a stupid question, but do you have to pay income tax if you let out your home and rent another? (because your hone is unsuitable & need more space, etc not because its an investment?)

(I'm assuming yes, but clutching at straws...)

Can someone pls enlighten me?? And if so, is there any legal way around this?

Yes as it is no longer your principal private residence - you would include it on a Tax Return. However you can offset mortgage interest payments and maintenance expenses (but not improvements) against the gross rental income, effectively paying tax only on the "profit". Capital Gains may be applicable in the long term should you sell it in a few years' time.

ah i see. So can you offset the whole of the mortgage Interest that you pay each month, or a proportion, do you know?

hmm.. also - how do you define a maintenance cost...? is there a link does anyone know?

You pay tax on the profit - so deduct mortgage interest, buildings insurance, agent's fees, and any one-off maintenance costs.

A maintenance cost is something you actually pay out. So if you have the gas man in to service the boiler, you offset his bill.

and remember it is only mortgage INTEREST not the entire mortgage payment if you are on a repayment mortgage.

this may help.

There is no way round it apart from not declaring it. Not that I am suggetsing you shoudl do that of course. I think its becoming easier to catch people not declaring just by the fact you have to register the deposit now.

If the propety id furnished you can also claim a 10% relief on the annual rental income for covering expenses relating to furniture and so on.

Yes you do set the whole interest payment against the ta bill but not the capital payment. You can also set the accountants fee off against your tax bill. I always do my own return for our rental property. Its quite easy.

excuse typos I have a headache!

Oh got it.

Thanks this is v helpful.

So do you mean you offset interest portion of the monthly mortgage cost, or the whole repayment of capital plus interest... iyswim?

So does that mean that - broadly speaking -you won't end up being any worse off if you rent a property for a similar amount as the one you rent OUT ?

only the interest element

cross-post

You only set off the interest portion of your mortage payment. In our case we have an interest only mortage - partly because we intend to sell it rather than keep it long term and partly because of the tax implications.

"So does that mean that - broadly speaking -you won't end up being any worse off if you rent a property for a similar amount as the one you rent OUT ?" If what you mean is you rent out a property for say £1000 per month and you rent another proerty for the same amount to live in, it will depend on the expenses you have relating to the property you own. You would have your mortgage payments, agency fees, maintenance (don't underestimate this) and you need to bare in mind void periods (when you can't rent the place out). You also have to get a gas safety certificate (not expensive normally about £50-80).

If you have rental income you havent declared, the best thing is to just come clean. We didnt declare ours for 3 years - mostly because we had very little profit but we just hired an accountant who fille dout the forms and got a letter saying that was fine.

ah doh - interest only mortgage yes that makes sense...

puts it into perspective a bit more...

We've not actually done any of this yet - I'm just trying to gather info. But see what you mean from a retrospective pov..

If you have any other questions feel free to ask. I ahve been renting a property for years so know a fair bit now or can at least point you in the right direction.

Hi thx that would be great sensitive!

To clarify then - rent ££ on a rented property is or isn't an allowable expense to claim against your own tax bill for your own, rented property?? My friend seems to think this is do- able but I'm only happy to do things above board...

If you let your property for less than your mortgage interest payments as we do, then there isn't any tax to pay, and any loss can be carried forward to the following tax year.

I have been renting my home out since 2006 and have not paid tax on the rental income at all, quite legally. I submit a return each year and there have been no problems to date.

If the property is jointly owned, then you have to split the rent and mortgage payments in half for the return iyswim.

Nope- mortgage less than rent would be...

Also- i don't earn enough to qualify for 40% tax - though dh does - would any 'income' from property , on my tax return, be taxed at 40%?

No, it would be taxed at your rate of tax, although you would have to be careful that the rental income didn't push you over the 40% band.

Ouch - good point! I don't think we're ever going to become landlords... Thank you