Rental income and tax
Rental income and tax
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Road Pest

Original Poster:

3,123 posts

228 months

Friday 21st March 2008
quotequote all
Hope someone can help or point me in the right direction.

We have recently moved and we are renting the flat that we moved from. The rental is £575/mth and once charges (full management package) and VAT are deducted I recieve £478. The mortgage is £543 and a monthly block management charge is £72 (paid by me), plus £50 a month for buildings insurance and ground rent. So the flat is costing £187 a month more than the income I get coming in.

Can I offset this against my wages or my wifes wages (both employed)? I pay 40% on some income so I would have thought mine would be the best to offset against if we can. How would I go about it? Is it simply a case of contacting Inland Revenue and filling out a self assessment form online?

Many thanks in advance for any help offered.

Eric Mc

125,793 posts

295 months

Friday 21st March 2008
quotequote all
You cannot offset the whole mortgage repayment against your rental income - only the interest elelment of the repayment. This means that you could actually be making a Rental Profit rather than a Rental Loss and consequently will be liable toi tax on the net rental income..

However, if the monthly repayments are "interest only" then obviously the entirety of the repayment is offsetable.

Road Pest

Original Poster:

3,123 posts

228 months

Friday 21st March 2008
quotequote all
Yes it is on interest only so I should go via the Inland Revenue to get this done I take it?

On the other reply, couldn't sell the flat for a good enough price. Literally no offers in 12 months. Decided to rent it out and keep as a long term investment. It can alway's become a city centre crash pad in a few years if all goes well, so it will have its uses. Additional costs of keeping the flat were of course accounted for before we finally decided to move.

sgrimshaw

7,587 posts

280 months

Friday 21st March 2008
quotequote all
In answer to the original question.

Losses on Land and Property (inc Rentals) cannot be offset against other types of income, such as wages.

However, you can carry forward Rental losses to subsequent tax years to offset against future Land & Property Incomes.


Road Pest

Original Poster:

3,123 posts

228 months

Friday 21st March 2008
quotequote all
sgrimshaw said:
In answer to the original question.

Losses on Land and Property (inc Rentals) cannot be offset against other types of income, such as wages.

However, you can carry forward Rental losses to subsequent tax years to offset against future Land & Property Incomes.
Thanks, just so I'm clear...
I need to make the IR aware of exactly what my losses are now and if I turn profit next year or the following then I'm in a position to offset previous year's losses against that. thumbup

Shame about offsetting against income, but still, should have known I wouldn't be allowed to do that, sounds too fair!

Thanks.

Eric Mc

125,793 posts

295 months

Friday 21st March 2008
quotequote all
The method used to inform HM Revenue and Customs (the Inland Revenue doesn't really exist anymore) is to apply for a Self Assessment tax return for the relevant tax year , complete the return and submit it to HMRC.


andy400

11,763 posts

261 months

Friday 21st March 2008
quotequote all
Strangely, although I know that I can't offset my losses against total income, and I simply roll it over for offset against future profits, each year I put in a property loss on my tax return, I get a not-insignificant tax rebate.

Have they set my tax code too high for some reason? Would they rather take too much and give it back, than take too little and have to ask for it?

Eric Mc

125,793 posts

295 months

Friday 21st March 2008
quotequote all
There might be some other reason why you get refunds.

On the other hand, you could be reclaiming loss relief in error. Tax rules do allow business losses to be offset against other income in the same tax year. That is a very handy way of recovering tax paid in other areas such as under PAYE or on bank interest.
However, this type of current year offset is not allowed under British Tax for Rental Losses.

I do not complete tax returns for my clients using the Revenue's own On Line system. I use a proprietory soiftware package instead. Therfore I am not sure if the Revenue's system allows a taxpayer to claim loss relief on rental income in error against other income.

andy400

11,763 posts

261 months

Friday 21st March 2008
quotequote all
Eric Mc said:
There might be some other reason why you get refunds.

On the other hand, you could be reclaiming loss relief in error. Tax rules do allow business losses to be offset against other income in the same tax year. That is a very handy way of recovering tax paid in other areas such as under PAYE or on bank interest.
However, this type of current year offset is not allowed under British Tax for Rental Losses.

I do not complete tax returns for my clients using the Revenue's own On Line system. I use a proprietory soiftware package instead. Therfore I am not sure if the Revenue's system allows a taxpayer to claim loss relief on rental income in error against other income.
Pretty sure I've not filled anything in error, though you never know. Do all my returns the old-fashioned way, on paper.

I think maybe the most likely reason is that my employer gets something wrong or does something weird?

Eric Mc

125,793 posts

295 months

Friday 21st March 2008
quotequote all
The onus is always on the tax payer to make sure they pay the correct tax - even if your employer works some of it out - or even the Revenue.

You should check what box you enter your rental losses in each year. You may be asking the Revenue to offset the loss against your other income by mistake.

The Revenue by and large follow whatever instructions they are given by the tax payer - even if those instructions are wrong.

To make matters worse, there is one set of citrcumstances where rental losses CAN be offset in this way, and that is when the loss was incurred from the renting out of a holiday letting. Holiday lets are looked on as businesses rather than investment properties and therefore their losses are allowed to be utilised the same way a trading loss would be.

andy400

11,763 posts

261 months

Friday 21st March 2008
quotequote all
Just been and checked the photocopy I've got of my last tax return. All looks like it's in the correct boxes to me. I think I'm going to do it the same this year and hope for another nice surprise.....

I'm all confused

Eric Mc

125,793 posts

295 months

Friday 21st March 2008
quotequote all
You might have discovered a fundamental flaw in the Revenue's system.

The basic rule in British tax is, even if the Revenue are in error, it's your fault.