/ should I be paying tax on rented propery

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d508934 - on 20 Nov 2012
I don't think I do but would be good to check for sure - make about 1K a year on the property, and its an interest only mortgage (which some tell me makes a difference)

any advice appreciated by a novice landlord!!
another_mark on 20 Nov 2012
In reply to d508934: Yes.
Irk the Purist - on 20 Nov 2012
In reply to d508934:

I believe any surplus after paying mortgage interest, maintenance, agent fees etc is subject to tax.

Lord_ash2000 - on 20 Nov 2012
In reply to d508934: Probably not. Interest payments are not taxed as they are an expense and the 1000 extra can all be written off under maintenance expenditures so the books balance at 0 or a loss.
Alex@home - on 20 Nov 2012
In reply to d508934:

you may have nothing to pay but you'll still need to complete a tax return to show the income and expenditure (expenses) involved
Toby_W on 20 Nov 2012
In reply to d508934:

Maybe, rather than have you claim for every little tax deductable from looking after the place I think the gov alows about 4k a year tax free but you should check this value. Anything above this you'll have to pay something on it depending on your other earnings.

Cheers

Toby
Richard Wilson - on 20 Nov 2012
In reply to Lord_ash2000:
> (In reply to d508934) Probably not. Interest payments are not taxed as they are an expense and the 1000 extra can all be written off under maintenance expenditures so the books balance at 0 or a loss.


Only if you have actual receipts for that 1k.

Any money left after interest, maintenance, adverts or agents fees ect is profits that should be taxed.
Richard Wilson - on 20 Nov 2012
In reply to Toby_W:
> (In reply to d508934)
>
> Maybe, rather than have you claim for every little tax deductable from looking after the place I think the gov alows about 4k a year tax free but you should check this value. Anything above this you'll have to pay something on it depending on your other earnings.
>
> Cheers
>
> Toby


Thats the rent a room (in your own house sharing facilities) scheme. Its not transferable to any other income.

d508934 - on 20 Nov 2012
In reply to Eric the Red:

that's why i think (hope) that interest only mortgage may remove any tax due here - as each monthly payment to the lovely mortgage company is 100% interest, never reducing the capital at all.
d508934 - on 20 Nov 2012
In reply to Toby_W:

I'd heard the 4K limit too so will try and find a definite answer, cheers
Mike Stretford - on 20 Nov 2012
In reply to d508934: What is the rent minus the mortgage per month.
MG - on 20 Nov 2012
In reply to d508934: Watch capital gains tax if you sell too.
d508934 - on 20 Nov 2012
In reply to Richard Wilson:

ah. perhaps not then!
d508934 - on 20 Nov 2012
In reply to MG:

is this different when selling as a landlord to a regular sale if I lived there?
d508934 - on 20 Nov 2012
In reply to Papillon:

looking at it annually, 12 months rent minus all expenses (mortgage, service charge, leasehold fees, maintenance etc) leaves about a grand
deanr - on 20 Nov 2012
In reply to d508934:

You will need to fill in a self-assessment tax return form. This will take into account all of your earnings and investments. You don't pay tax on the first 4k of all your earnings (both your normal job and the income from your property), so the 4k thing is a red herring and doesn't apply to rental income on its own. You will need to complete the return form whether you make rental profit or not. However, as stated earlier, if your costs add up to more than your income on the property you won't pay tax on it.

If you keep the property for more than 3 years and sell it, you will need to pay capital gains on any profit you make.

MG - on 20 Nov 2012
In reply to d508934:
> (In reply to MG)
>
> is this different when selling as a landlord to a regular sale if I lived there?

As I understand it your personal property is CGT free but not other properties you own. I think you owe tax on the 1k you mention. I am not an accountant nor do I own two houses though, so check!

MG - on 20 Nov 2012
In reply to deanr:
> (In reply to d508934)
>
> You will need to fill in a self-assessment tax return form. This will take into account all of your earnings and investments. You don't pay tax on the first 4k of all your earnings (both your normal job and the income from your property),

The tax free allowance in 8,105!
d508934 - on 20 Nov 2012
In reply to MG:

I only own the one property, rent the place actually live in. so hopefully this won't apply.
Mike Stretford - on 20 Nov 2012
In reply to d508934: Not much tax to pay then. Your interest mortgage doesn't really make a difference, it's just easier to work out in your case as you know it's all interest.
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Mike Stretford - on 20 Nov 2012
In reply to d508934: You mean you have a lodger? Then the 4k does apply.
hokkyokusei - on 20 Nov 2012
In reply to d508934:

http://www.hmrc.gov.uk/incometax/taxable-income.htm

If it is rental income from a lodger in your only, or family home then you can earn up to 4250 tax free.

If it's a second property then the income is taxable. There are allowable expenses which may be offset against that tax, but you will have to fill in a tax return. Here's a guide:

http://www.hmrc.gov.uk/agents/toolkits/property-rental.pdf

Neil Williams - on 20 Nov 2012
In reply to d508934:

Yes.

The "guaranteed" tax relief of the rent-a-room scheme applies only to a property you are resident in as well, AIUI. Any other type and you must do a tax return and declare it even if it concludes no tax is required.

Neil
Neil Williams - on 20 Nov 2012
In reply to d508934:

Yes, if it's a second home.

Neil
Neil Williams - on 20 Nov 2012
In reply to d508934:

I don't think it matters how many properties you *own*, it's whether you *live in* that property. If you rent one to live in and rent your own out, AIUI that's still a second home, unless you move back for a period first.

Neil
Mooncat - on 20 Nov 2012
In reply to d508934:

Get in touch with your tax office asap to declare this otherwise you could get penalties. If you have paye income you wouldn't need to do self assessment unless your gross profit is over 10k. Any profit can otherwise be taxed through your paye code.
JM - on 20 Nov 2012
How can you only be making 1K a year!? How much rent do you charge?
Blunderbuss - on 20 Nov 2012
In reply to this thread:


My god there is some dodgy advice/assumptions on this thread.

No wonder the tax take of the country is so messed up.
Ferret on 20 Nov 2012
In reply to d508934: Read the HMRC guide that some other kind person supplied but a summary of how it works (and I'm no great expert is)
1. Tally up income on it for the year - thats your rent coming in
2. Tally up all expenses... thats your mortgage interest, any landlords insurance, any repairs carried out, any annual safety checks/certificates carried out etc.
3. Calculate your profit which is 1 less 2. In your case you state its around 1,000. Thats the number that then goes into your tax return as undeclared income.
But - from memory there is a deduction that can be made to profit to capture what might be termed the embugerment of managing the property yourself and I think thats based on a percentage of the annual rent... its designed to capture that you are probably doing a few journeys a year, spending a bit of time on the phone etc and its there to save you trying to claim a few miles expenses and a few phone calls etc. That can reduce your taxable profit a bit too. If you paid an agent you wouldn't claim that but your profit would be lower as you would be paying an agents fee to do what you are doing yourself.
Tax man will check the form and may ask to see your records for several years so keep each years proof of what you put on the tax form. The tax man will then probably just reduce your tax free allowance via your tax code and collect what you owe that way... assuming you are in the 20% tax band they would drop your code from say 815 to 715 (examples) which means you pay tax on 1,000 more of your salary and at 20% that would mean 200 per year (leaving you a net 800 better off on the renting) and your monthly salary drops by 16.66. In reality it all gets a tad more complicated as the tax code gets adjusted part way through the year so they then claw back some next year plus whatever you admit to the following year and so on so I personaly find keeping track of precisely what is in my tax code and why very hard. But the basics are simple....
d508934 - on 21 Nov 2012
In reply to JM:

charge the going rate for a one bedroom flat in town. I'm an accidental landlord, bought the place right at the peak of the property boom, then started a family so needed somewhere bigger and couldn't sell it, so let it out while we rent somewhere else that we actually live in. No intention of becoming a property magnate, and would happily get rid of this one, hopefully next year the market will be a bit more lively.
d508934 - on 21 Nov 2012
In reply to Ferret:

> 1. Tally up income on it for the year - thats your rent coming in
> 2. Tally up all expenses... thats your mortgage interest, any landlords insurance, any repairs carried out, any annual safety checks/certificates carried out etc.
> 3. Calculate your profit which is 1 less 2. In your case you state its around 1,000. Thats the number that then goes into your tax return as undeclared income.

Yep, 1-2=1K

> But - from memory there is a deduction that can be made to profit to capture what might be termed the embugerment of managing the property yourself and I think thats based on a percentage of the annual rent... its designed to capture that you are probably doing a few journeys a year, spending a bit of time on the phone etc and its there to save you trying to claim a few miles expenses and a few phone calls etc. That can reduce your taxable profit a bit too.

If anyone has a link for clarification on this that would be ace - the journeys over their, phone calls etc do indeed add up, I can either list them but would be easier to have an HMRC approved deduction to do it at once.




d508934 - on 21 Nov 2012
In reply to Blunderbuss:
> (In reply to this thread)
>
>
> My god there is some dodgy advice/assumptions on this thread.
>
> No wonder the tax take of the country is so messed up.

If you wanna seperate out the good advice from the bad please go ahead!!
Edradour - on 21 Nov 2012
In reply to d508934:

This has all the information you need:

http://www.which.co.uk/money/tax/guides/tax-on-property-and-rental-income/

In summary, if you earn less than 2500 a year then there is no need for a self assessment form (though you ought to notify the tax office). More than that and you do. It's pretty straightforward.
Edradour - on 21 Nov 2012
In reply to JM:

> How can you only be making 1K a year!? How much rent do you charge?

Not all landlords are laughing all the way to the bank. There are many hidden charges. For example service charges, ground rent, upkeep, covering void periods etc etc. I make a fairly significant loss on my rental propert - I hope to sell at some point but the market is currently too sluggish to make it worthwhile.

If I don't sell then eventually the rent will outstrip the mortgage and I'll make money but that is several years away yet.

Similar to selling, you can only charge a rental amount that someone is going to pay - at the moment that threshold is fairly low.



StuartG - on 21 Nov 2012
In reply to d508934:
In a nutshell, if you are making any profit, you are liable to pay tax on it. If you are renting out a house you own, and renting one yourself you are still liable.
If you don't declare the income, they will get you eventually, and may penalise you for not cooperating. For example, they compare who pays the Council Tax to who pays the mortgage so you can see how easy it is for them.

My advice would be to contact your local office and they will advise you. If you are making only 1k per year the tax won't be that much (of course this depends on your other income).

We are in the same position as you, and it's not as onerous as it first appears once you get into it. Make sure you keep all receipts for any expenditure which you can reduce your liability with.
Edradour - on 21 Nov 2012
In reply to StuartG:
> (In reply to d508934)
> For example, they compare who pays the Council Tax to who pays the mortgage so you can see how easy it is for them.

That's hardly a failsafe method of working out whether a property is rented or not though is it?

I pay the mortgage on a flat I own with my sister (she pays me). She pays the council tax because she lives there and I don't - we don't rent it out. We have never been asked by the tax man or anyone else whether we rent it out or not.

Going to the effort of finding out the mortgage company of every property is also not a trivial affair so is it really worth their effort for a few thousand quid? Probably not.

chers - on 22 Nov 2012
In reply to d508934: Good luck with finding out from your Tax office. They are pretty difficult to deal with and do not believe in plain english!
I'm in a similar position to you (maked around 90 a months after deductions) and am still trying to sort it out with them after almost 2 years! Basically theyll ask for details of rental income and all expenses (mortgage, insurance, maintenance etc etc) to work out profits and if tax is due. I've done that 3 times...the result, they decided to change my employment tax code and deduct it that way. I told them more than once I wanted to keep the two seperate. Several letters and calls later it gets changed back and I'm none the wiser. Last letter to them said if I heard no more I will assume I dont need to pay any and I just got a letter saying I'll need to do the self assessment stuff next year. So, will wait to see what they send me but have been putting back a small amount each month just in case.

Capital gains - I've been told if you don't live in the property, regardless of how many you own, after 3 years you will pay CGT when you sell (which will wipe out most of what I might make if I sell mine!)...but I did wonder, how they monitor this?
Ferret on 22 Nov 2012
In reply to chers: While I sympathise with the plain English issues and the tax people not doing what you wanted (most people, for small amounts would rather their tax code was changed as that acts like a monthly payment plan in the months ahead to pay tax on income already received... unless people are organised and keep money back to pay a tax bill the thought of being billed and writting a cheque can be painfull) people seem to loose sight of the fact that we are obliged legally and morally to pay our legal taxes.

Figuring out precisely what your legal tax is can be complex but in most cases is pretty simple. I self asses annualy some simple bits and pieces and it is not a painfull process. I have also had periods when I have had PAYE emploment and untaxed consultancy work that I declared, and calculated a profit on by deducting expenses etc and paid tax on the remainder. Again, relatively easy. A tax payers obligation is to declare their situation honestly, the tax mans job is help you pay the correct tax. Its not the tax mans job to guess your situation as you are required to asses yourself to them.

There are pretty good guides out there, links to which have been supplied. Outside those guides most of the rest of the discussion here (my comments included) are second hand, largely amateur interpretations of varying quality.

As an aside - how many on this thread would walk into a shop, pick up a 500 item and walk out? Yet theres a number of comments around if they don't find/catch me...... Total red herring - whats the relevance of discussing 'how' the authorities will catch you if you don't do it properly. They might or might not but if anybody on this thread deliberately sets out to not pay tax in hopes they will not be noticed thats theft.

While I'd love to see tax simplified as I believe we waste an enormous amount of money either calculating it, collecting it or figuring out schemes to 'minimise' it I'd also love everybody to pay the correct amount so the country has more income to distribute.

General rants not directed at anybody in particular... just thoughts catalysed by comments and attitudes visible through this thread.
TheDrunkenBakers - on 22 Nov 2012
In reply to d508934: Get an accountant
d508934 - on 22 Nov 2012
In reply to Fickalli:

thanks, great link, much clearer than most info out there!
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d508934 - on 22 Nov 2012
In reply to chers:

interesting stuff. how do you take into account with your place travel to the property, in terms of petrol and time? similar with phone calls to tenants, repair companies etc. Would like to make sure they are included to reduce tax liability.
d508934 - on 22 Nov 2012
In reply to Ferret:

would happily have it done throguh PAYE. only concern is that for last 2 years HMRC have written to me saying tax code change, and that they are also writing to my employers to inform them and get the change made... but my work have never received the corresponding letter. suspect at some point I'll get multiple years of corrections added into one year which will hurt!
Ferret on 22 Nov 2012
In reply to d508934: Yeh - I know... due to the method used where they change a tax code intra tax year, to claim X amount of tax back assuming the code is used for an entire year (which it can't when its changed intra year) I always end up with carry over from one year to the next so it gets very confusing. I'm often tempted just to keep my code simple and write a cheque annualy for the extra so that I can better know where I stand. Looks like some other individuals have tried this and failed due to tax man not doing what they say they will which is annoying....
hokkyokusei - on 22 Nov 2012
In reply to d508934:
> (In reply to Blunderbuss)
> [...]
>
> If you wanna seperate out the good advice from the bad please go ahead!!

I posted you a link to the actual HMRC rules - I think that counts as good advice.
steveej - on 23 Nov 2012
In reply to d508934:

in summary you pay tax on your rental PROFIT (i.e. income after allowable expenses - which includes mortgage interest).

The level of tax due on the profit depends on the level of your other sources of income.

You have a legal obligation to notify HMRC if you are a landlord renting out property.

You should always file a tax return, even if you make a rental LOSS. This is because losses can be carried forward to the following year, and your accumulated losses can be used to offset any rental PROFIT you may make in future years.

Rules do change from time to time so be careful when looking at old links on the internet.

There is plenty of up to date information on the HMRC website.

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