Renting out own home to rent another?

Renting out own home to rent another?

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W4NTED

Original Poster:

690 posts

214 months

Wednesday 18th November 2015
quotequote all
Advice required for my brother who curently owns a home in London and has a mortgage. Work is taking him up north to Manchester for at least 3 years. He is considering renting his own home out down in London as he does not want to sell it and he is also tied in to a mortgage for another 5 years (recently remortgaged at a good rate). He has been told by the mortgage company this is possible via a consent to lease arrangement as they will add 1% to his current interest rates.

Say he rents outs the London home for £1200 and his mortage payments are £1200 too there is no profit made and he breaks even - the rent pays his mortgage but any upkeep or maintainece will be his problem but in no way is he making a profit on this letting.

Does he still need to pay tax on this rental income and if ao how much?

His place he will rent in Manchester will cost £950 a month.

He is letting his only residential property and is not a buy to let investor so in this case what are his tax liabilities tomrent his own home For three years? Thanks

RegMolehusband

3,960 posts

257 months

Wednesday 18th November 2015
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I believe under Mr. Osborne's forthcoming tax changes the profit will be calculated as £1200 from 2017(?). So he will screw your mate whether it's his ex residential home or not.

I let out my ex marital home of 17 years to fund my rented home and believe that I too will be swept up in these unfair tax laws.

98elise

26,575 posts

161 months

Thursday 19th November 2015
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It doesn't matter if its his only rented property, its still let so is liable to tax in the same way as any BTL.

Tax changes will soon mean that tax may be due even if he's not making a profit, (even if its making a loss).

The government seem hell bent on stopping individuals from moving into the investment or business world.

Eric Mc

122,018 posts

265 months

Thursday 19th November 2015
quotequote all
How much of the £1,200 repayment is interest and how much is Capital Repayment?

Under current rules, the INTEREST element of the repayment is an allowable cost when calculating the annual profit or loss on the rental property.

The allowabillity of interest against rental income is being restricted from tax year 2016/17 onwards. This means that over the next five years, a landlord's tax liability on his rental profits will increase as the interest claim becomes less and less available for offset.

W4NTED

Original Poster:

690 posts

214 months

Thursday 19th November 2015
quotequote all
Eric Mc said:
How much of the £1,200 repayment is interest and how much is Capital Repayment?

Under current rules, the INTEREST element of the repayment is an allowable cost when calculating the annual profit or loss on the rental property.

The allowabillity of interest against rental income is being restricted from tax year 2016/17 onwards. This means that over the next five years, a landlord's tax liability on his rental profits will increase as the interest claim becomes less and less available for offset.
Guess it will be 51% Capital and 49% Interest.

sumo69

2,164 posts

220 months

Thursday 19th November 2015
quotequote all
Eric Mc said:
The allowabillity of interest against rental income is being restricted from tax year 2016/17 onwards. This means that over the next five years, a landlord's tax liability on his rental profits will increase as the interest claim becomes less and less available for offset.
Eric - 2016/17 is not restricted but the final year of the current rules - the restrictions start from 5th April 2017.

Hope that isn't what you have told your clients!!

David

Eric Mc

122,018 posts

265 months

Thursday 19th November 2015
quotequote all
sumo69 said:
Eric - 2016/17 is not restricted but the final year of the current rules - the restrictions start from 5th April 2017.

Hope that isn't what you have told your clients!!

David
Are you worried about my clients?

That's very thoughtful of you.

sumo69

2,164 posts

220 months

Thursday 19th November 2015
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Eric Mc said:
Are you worried about my clients?

That's very thoughtful of you.
I know - just making sure standards are maintained.



Eric Mc

122,018 posts

265 months

Thursday 19th November 2015
quotequote all
sumo69 said:
Eric Mc said:
Are you worried about my clients?

That's very thoughtful of you.
I know - just making sure standards are maintained.
Did you attend a "How to be Condascending" course in your most recent round of CPD lectures. I have to say, you have been a model student and learned well.

anonymous-user

54 months

Thursday 19th November 2015
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One would hope that every course on 'how to be condescending' included ample time devoted to spelling.

Wouldn't one?

anonymous-user

54 months

Thursday 19th November 2015
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More importantly, was Eric right or wrong?

anonymous-user

54 months

Thursday 19th November 2015
quotequote all
the restriction of relief starts in the 17/18 tax year and is phased in so that the withdrawal is fully implemented in and from the 20/21 tax year

it is clause 24 in this document

https://www.gov.uk/government/uploads/system/uploa...

Eric Mc

122,018 posts

265 months

Thursday 19th November 2015
quotequote all
I was wrong. I have no problem admitting that. What I didn't like was Sumo's second comment.


sumo69

2,164 posts

220 months

Friday 20th November 2015
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Eric Mc said:
I was wrong. I have no problem admitting that. What I didn't like was Sumo's second comment.
There wouldn't have been a 2nd comment if you would have not tried to deflect my correction via a sarcastic statement rather than admitting the mistake, which I am sure wasn't deliberate.

Its a public forum so if anyone posts a factually significant error, then be prepared to get shot at or don't post - I accept that and so should you.

David

Eric Mc

122,018 posts

265 months

Friday 20th November 2015
quotequote all
I do accept the pointing out of the error. I have no problem with that. I don't accept what you said next regarding how I handle my clients which was completely unnecessary and as far as I am concerned, downright unprofessional..

I would NEVER cast aspersions on your ability to deal with your clients on a public forum out of professional respect. Your comment lacked that - which to me is extremely unprofessional. There is more to being a professional than being 100% factually correct.

As ever, it's not what people say that really matters, it's how they go about saying it.

sumo69

2,164 posts

220 months

Friday 20th November 2015
quotequote all
Eric Mc said:
As ever, it's not what people say that really matters, it's how they go about saying it.
Correct - as my previous post intimated. You replied with a sarcastic response rather than correcting your mistake at the earliest opportunity.

I could say that is unprofessional, but this is spoiling the thread so I think we should stop this now.

If you want to PM me to "discuss", you can.

David

Eric Mc

122,018 posts

265 months

Friday 20th November 2015
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It was your personal comment "Hope that isn't what you have told your clients!!" that set me of. I doubt you will want to apologise for that so I won't ask you to.

If you had a personal comment to make about how I run my practice, you should have PM'd me rather than make such a comment on a public forum.

But, I will leave it there.

2Btoo

3,425 posts

203 months

Friday 20th November 2015
quotequote all
To return to the topic raised by the OP .... I thought the new rules restricted the loan interest that could be offset against higher-rate tax, but you could offset it all against regular-rate tax.

Am I wrong? (Did my question make sense?)

Eric Mc

122,018 posts

265 months

Friday 20th November 2015
quotequote all
2Btoo said:
To return to the topic raised by the OP .... I thought the new rules restricted the loan interest that could be offset against higher-rate tax, but you could offset it all against regular-rate tax.

Am I wrong? (Did my question make sense?)
That is correct. By restricting the interest against basic rate tax you will get less tax reduction then you did in the past. In some cases, this will mean some landlords will pay tax on rental income even if the property is generating an actual loss.


2Btoo

3,425 posts

203 months

Friday 20th November 2015
quotequote all
Thanks. If my understanding is correct then that circumstance would only arise if the landlord is a higher-rate taxpayer from income not related to the house he is renting out, non?