A taxing question
Discussion
Thanks in advance for any help!
Back in February I moved out of my (mortgaged) flat and moved in with my girlfriend. Early summer I applied for permission to let the flat out as paying a mortgage for nothing seemed a bit silly.
After many months of waiting and hassling for an answer I was finally given permission to let. As I bought my flat at the top of the market my mortgage is higher than the rental income will be, by approx. £100. The flat went on the market and a week later someone liked the look of it and has paid the estate agent the admin / references fee, he wants to move in on the 7th January.
All good so far, the only question I have is what (if any?) tax will I have to pay on the rental income?
Back in February I moved out of my (mortgaged) flat and moved in with my girlfriend. Early summer I applied for permission to let the flat out as paying a mortgage for nothing seemed a bit silly.
After many months of waiting and hassling for an answer I was finally given permission to let. As I bought my flat at the top of the market my mortgage is higher than the rental income will be, by approx. £100. The flat went on the market and a week later someone liked the look of it and has paid the estate agent the admin / references fee, he wants to move in on the 7th January.
All good so far, the only question I have is what (if any?) tax will I have to pay on the rental income?
An individual pays Income Tax on RENTAL PROFITS (not Rental Income).
To arrive at your Rental Profit figure, you total up the rents received during the relevant tax year and you deduct from this allowable rental costs, which are usually made up of -
repairs and maintenance costs incurred
any agents fees incurred
advertising costs regarding looking for tenants
legal costs in dealing with tenant related issues
light and heat bills paid by the landlord
water and council tax charges paid by the landlord
property and contents insurance paid by the landlord
mortgage interest on the property loan
If the property is being let fully furnished, you are allowed claim a Wear and Tear allowance in respect of the furniture. This cost is calculated as being 10% of the Gross Rents received LESS any council tax and water rates paid by the landlord
If at the end of this process it turns out you have made a rental loss (which is not that unusual these days), you still need to make a return of the situation to HMRC under the self assessment rules. In fact, this is a "good thing" because, by doing this, you are "logging" the loss for the year. Rental losses can be carried forward to the next and future tax years so that you can offset them against any future rental profits you might make in those future tax years.
To arrive at your Rental Profit figure, you total up the rents received during the relevant tax year and you deduct from this allowable rental costs, which are usually made up of -
repairs and maintenance costs incurred
any agents fees incurred
advertising costs regarding looking for tenants
legal costs in dealing with tenant related issues
light and heat bills paid by the landlord
water and council tax charges paid by the landlord
property and contents insurance paid by the landlord
mortgage interest on the property loan
If the property is being let fully furnished, you are allowed claim a Wear and Tear allowance in respect of the furniture. This cost is calculated as being 10% of the Gross Rents received LESS any council tax and water rates paid by the landlord
If at the end of this process it turns out you have made a rental loss (which is not that unusual these days), you still need to make a return of the situation to HMRC under the self assessment rules. In fact, this is a "good thing" because, by doing this, you are "logging" the loss for the year. Rental losses can be carried forward to the next and future tax years so that you can offset them against any future rental profits you might make in those future tax years.
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