buy to let and tax
Discussion
andy_b said:
just wondering, you pay tax on the inocome from rent - any expenses.
Does the mortgage count as an expense?
Eric'll be along soon. In the meantime, the interest on the mortgage can be offset as an expense, as can other legitimate costs.
You'll have to pay capital gains tax on the profit (after an allowance for inflation) when you sell the property. (Less your annual allowance if you've not already used it)
were renting while were in Canada. However, today I found that the UK and Canada has a tax treaty which might be a bit of a bugger.
Our rent will just about cover our interest only mortgage. We plan to return in 2-3 yrs and probably live in the same house
>> Edited by andy_b on Thursday 24th February 22:04
Our rent will just about cover our interest only mortgage. We plan to return in 2-3 yrs and probably live in the same house
>> Edited by andy_b on Thursday 24th February 22:04
You have a yearly allowance on rental income, similar to income tax. It's around £4,500 pa before you pay tax. You can also deduct all costs, including mortgage (interest part), depreciation, agents fees, essential repairs, accountants fees, building insurance etc.
So for example, you receive £10k per year rent, but you have pay letting agents 10%, leaving 9k income. You may pay your accountant £400 pa, pay £400 per month mortgage and you are already now down to below £4k taxable income, which will be covered by your rental allowance.
Always best to take an accountants advice though, let me know if you want a recomendation of one who is specialist in rental income....
So for example, you receive £10k per year rent, but you have pay letting agents 10%, leaving 9k income. You may pay your accountant £400 pa, pay £400 per month mortgage and you are already now down to below £4k taxable income, which will be covered by your rental allowance.
Always best to take an accountants advice though, let me know if you want a recomendation of one who is specialist in rental income....
andy_b said:
were renting while were in Canada. However, today I found that the UK and Canada has a tax treaty which might be a bit of a bugger.
Our rent will just about cover our interest only mortgage. We plan to return in 2-3 yrs and probably live in the same house
>> Edited by andy_b on Thursday 24th February 22:04
Andy, you can apply to the inland revenue to have the rent paid without deduction of tax, and then let your accountant work out any tax as per my previous answer. Your letting agent should have already asked for a F.I.C.O number if he knew you were overseas....
Also, speak to an accountant about you returning. I understand that you may get clobbered on CGT if you try and sell the UK property when you return, unless you intend to stay there a while. If you sell a UK property when you are not UK tax domicile then you do not pay CGT, whereas if you sell a UK property that has been rented out, and you live in the UK then complications may arise.
Just a thought....
andy_b said:
cool, so we have a rentable house for £725-£750 and a mortgage (int only) of £620. We have to pay £70 a month for the rental management, so we shouldnt have to pay anything. Cool
Anyone you can recommend would be cool
Looks about right! Not sure if I am allowed to post someones name and number here, drop me an e-mail and I will give you his number...
steve35 said:
You have a yearly allowance on rental income, similar to income tax. It's around £4,500 pa before you pay tax. .
If you're refering to the "rent a room scheme" allowance, then that only applies if you let a room in a house you live in - not a full house being rented.
You can also only claim the interest charge of the mortgage, not the full monthly payment.
If you let the house furnished then you can claim 10% of the gross rents as wear and tear, together with the other items mentioned, ie insurance, agents fees, etc etc.
You can offset your mortgage (interest element only), any management fees, any maintenance charges and 10% for wear and tear (I thought you had a choice of one or the other of the last two, but PWC have allowed for both on my tax return and I reckon they probably know more about this than me).
If you are resident abroad for the whole of the tax year i.e. 6 April to the following 5 April, you will not be liable to UK tax. If you are abroad for only part of a given tax year, you will probably be liable in full for UK tax on your rented property.
If you do have to complete a Rental Return to the Inland Revenue, you should be aware of the following:
The 10% Wear and Tear Allowance only applies if you are renting out the property fully furnished. It does not apply to bare rentals of the property only.
There is no generic "Annual Allowance" that you can offset against rental income. As has been pointed out, there is no requirement to return details of rental income when the rent is derived from a lodger living in your own home provided the rent does not exceed £4,250 per annum. This relief does not apply to "normal" rental income.
Normal expenses which can be offset against rental income are:
Mortgage/Loan Interest
Repairs and renewals
Management fees and commissions
Accountancy fees
Legal fees for certain aspects of magaing a rental property (some legal fees are specificvally not allowed to be ofset against rental income)
Property costs borne by the landlord - light and heat bills, insurance, council tax, water charges etc.
Ground rents and leasehold maintenance charges if applicable
If the property makes a rental loss (not that unusual), the loss is carried forward indefinitely to future tax years for offset against future rental profits.
The actual mortgage repayments are not allowable in full - which actually makes sense when you think about it. Why should you get tax relief on that part of the repayment which relates to the capital element of the loan given to you by the bank/building society? The Inland Revenue didn't tax you on the Loan Amount when it was given to you by the bank, did they?
Large Capital Costs incurred on the property cannot be offset against the rental income either. However, you will get tax relief for this type of expenditure when calculating any Capital Gain when the property is eventually disposed of. It is important therefore that adequate evidence of all expenditure on the property is retained as it most of it will be allowable for tax purposes at some point.
Regarding Capital Gains Tax, you will be potentially liable to CGT when the property is eventually sold. There are a number of factors that help reduce the actual gain before it is finalised -
Personal CGT Allowance - each tax year an individual has an annual CGT allowance (£8,200 for 2004/05). No tax is paid until a gain exceeds this amount. If a property is jointly owned, then allowances of £16,400 would be useable against the gain.
The gain is also reduced to take inflation into account. The technique used is called Taper Relief but it only kicks in if the property is held for more than two years.
In some restricted circumstances, properties which have been let are eligible for additional a CGT relief called the Residential Lettings Exemption.
And finally, if the property has been or becomes your main residence, youi will trigger further reliefs.
If you do have to complete a Rental Return to the Inland Revenue, you should be aware of the following:
The 10% Wear and Tear Allowance only applies if you are renting out the property fully furnished. It does not apply to bare rentals of the property only.
There is no generic "Annual Allowance" that you can offset against rental income. As has been pointed out, there is no requirement to return details of rental income when the rent is derived from a lodger living in your own home provided the rent does not exceed £4,250 per annum. This relief does not apply to "normal" rental income.
Normal expenses which can be offset against rental income are:
Mortgage/Loan Interest
Repairs and renewals
Management fees and commissions
Accountancy fees
Legal fees for certain aspects of magaing a rental property (some legal fees are specificvally not allowed to be ofset against rental income)
Property costs borne by the landlord - light and heat bills, insurance, council tax, water charges etc.
Ground rents and leasehold maintenance charges if applicable
If the property makes a rental loss (not that unusual), the loss is carried forward indefinitely to future tax years for offset against future rental profits.
The actual mortgage repayments are not allowable in full - which actually makes sense when you think about it. Why should you get tax relief on that part of the repayment which relates to the capital element of the loan given to you by the bank/building society? The Inland Revenue didn't tax you on the Loan Amount when it was given to you by the bank, did they?
Large Capital Costs incurred on the property cannot be offset against the rental income either. However, you will get tax relief for this type of expenditure when calculating any Capital Gain when the property is eventually disposed of. It is important therefore that adequate evidence of all expenditure on the property is retained as it most of it will be allowable for tax purposes at some point.
Regarding Capital Gains Tax, you will be potentially liable to CGT when the property is eventually sold. There are a number of factors that help reduce the actual gain before it is finalised -
Personal CGT Allowance - each tax year an individual has an annual CGT allowance (£8,200 for 2004/05). No tax is paid until a gain exceeds this amount. If a property is jointly owned, then allowances of £16,400 would be useable against the gain.
The gain is also reduced to take inflation into account. The technique used is called Taper Relief but it only kicks in if the property is held for more than two years.
In some restricted circumstances, properties which have been let are eligible for additional a CGT relief called the Residential Lettings Exemption.
And finally, if the property has been or becomes your main residence, youi will trigger further reliefs.
thanks all. Were on interest only mortgage, at least while were away so we should be OK. Had a worry for a while though. The property is also in joint names as is the rental agreement.
We have lived here for about 3 1/2 years prior to renting it out (from end of March), so that works out well for the tax man as well
We have lived here for about 3 1/2 years prior to renting it out (from end of March), so that works out well for the tax man as well
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