Advice re renting property and tax liability etc - HotUKDeals
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Advice re renting property and tax liability etc

wishihadadonkey Avatar
[mod] 6y, 6m agoPosted 6 years, 6 months ago
Hiya, was wondering if anyone could point me in the right direction or know if we would have to pay anything if we rented our property out to rent another one ourselves?

I'm not explaining this right, we own our property with a mortgage, but at the moment due to my sons ill health it's not suitable and can't be adapted to be so, we were thinking of selling and trying to buy something more suitable, but because we are not sure how mortgage rates/tax rises etc are going to pan out, we thought we might rent ours out and rent somewhere else ourselves that would be more suitable?

The rent we have been quoted as being able to acheive would be approx £250 more than our mortgage, we would have an agency fee of 10 % + vat to pay monthly and obviously we would be responsible for running repairs etc. The property we are looking at is about £100 less per month to rent but in a higher council tax band ( ours band c, new one band e ), I don't know why the rent difference, the agent said because we were in a better catchment area for schools etc.

So my question is, would we be liable to pay any tax etc?
Thanks in advance
wishihadadonkey Avatar
[mod] 6y, 6m agoPosted 6 years, 6 months ago
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#1
Yes you would be liable for tax on the rental income, of course.
[mod][Moderator] 1 Like #2
gerrygedder
Yes you would be liable for tax on the rental income, of course.


The whole amount or the difference between the mortgage and the rent?:thumbsup:
1 Like #3
You pay tax on the profit you make from the rental income after allowable expenses. The interest part of the mortgage is an allowable expense.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027
banned#4
wishihadadonkey;8603860
The whole amount or the difference between the mortgage and the rent?:thumbsup:

most expenses (incl mortgage) can be offset against the income.
#5
wishihadadonkey
The whole amount or the difference between the mortgage and the rent?:thumbsup:


in short, the whole amount
#6
csiman
most expenses (incl mortgage) can be offset against the income.


please note the above reply is utter tosh
[mod][Moderator] 1 Like #7
csiman
most expenses (incl mortgage) can be offset against the income.


Thanks, that wouldn't be too bad, I did ring the local tax office, but just told me to put it in writing, I needed to know sooner rather than later:thumbsup:
banned 1 Like #8
not sure if you would also be liable for any capital gains tax on selling the property if it goes up in value

really doesnt seem worth it for £150 a month when you would also have to pay out rent on the new property

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435
[mod][Moderator] 1 Like #9
melipona
You pay tax on the profit you make from the rental income after allowable expenses. The interest part of the mortgage is an allowable expense.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027



Thanks, seems like I would be able to claim for mortgage ( luckily mine interest only, I pay for a pension on top ) and rental agents fees, lease agreements etc, so wouldn't be liable for much, rep given:thumbsup:
banned#10
gerrygedder;8603888
please note the above reply is utter tosh

dont comment if you dont know what you are talking about :whistling:

Allowable expenses

The expenses you can deduct from letting income (unless it's under the Rent a Room scheme) include:[LIST]
[*]letting agent's fees
[*]legal fees for lets of a year or less, or for renewing a lease for less than 50 years
[*]accountant's fees
[*]buildings and contents insurance
[*][SIZE=6]interest on property loans[/SIZE]
[*]maintenance and repairs to the property (but not improvements)
[*]utility bills (like gas, water, electricity)
[*]rent, ground rent, service charges
[*]Council Tax
[*]services you pay for, like cleaning or gardening
[*]other direct costs of letting the property, like phone calls, stationery, advertising[/LIST]

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027
banned#11
Hopefully this will help:

We (Jenny and I) own and have a small mortgage on a property that we rent out through a management company.
We also own another property that we have a small mortgage on that we live in.

On the property we own and rent out, we have to pay tax on whatever profits we make (like being in a business).
As we are BOTH on the agreement and have an equal shareholding in everything, the tax is split between us.

Depending on what your situation is, the only thing you need to think about is if you are suddenly taken into paying a higher rate of tax due to income, therefore make sure you split it if possible.

Hope that helps.
#12
Yearly Rent - Yearly (Allowable expenses + Mortgage interest + Estate agent fees + Maintenance expenses) = taxable income

Allowable expenses list should be in tax revenue website.

EDIT: Seems more detailed posts have appeared while i was typing. :)
#13
csiman
dont comment if you dont know what you are talking about :whistling:

Allowable expenses

The expenses you can deduct from letting income (unless it's under the Rent a Room scheme) include:[LIST]
[*]letting agent's fees
[*]legal fees for lets of a year or less, or for renewing a lease for less than 50 years
[*]accountant's fees
[*]buildings and contents insurance
[*][SIZE=6]interest on property loans[/SIZE]
[*]maintenance and repairs to the property (but not improvements)
[*]utility bills (like gas, water, electricity)
[*]rent, ground rent, service charges
[*]Council Tax
[*]services you pay for, like cleaning or gardening
[*]other direct costs of letting the property, like phone calls, stationery, advertising[/LIST]

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027


You quoted, "inc: mortgage" in your advice. This is incorrect, and therefore "utter tosh".

The difference between interest and mortgage repayments can be signifificant, so the distinction is important.

I don't expect an apology.
#14
Sorry to jump in but i have a question which is kind of related to this...

me and my wife are in a similar situation...we live in a 2 bed apartment but want to rent that out and buy a house. Can we use the flat as security on the mortgage instead of giving a large deposit...
1 Like #15
csiman;8603926
dont comment if you dont know what you are talking about :whistling:

Allowable expenses

The expenses you can deduct from letting income (unless it's under the Rent a Room scheme) include:
[LIST]
[*]letting agent's fees
[*]legal fees for lets of a year or less, or for renewing a lease for less than 50 years
[*]accountant's fees
[*]buildings and contents insurance
[*][SIZE=6]interest on property loans[/SIZE]
[*]maintenance and repairs to the property (but not improvements)
[*][COLOR=red]utility bills (like gas, water, electricity)[/COLOR]
[*]rent, ground rent, service charges
[*][COLOR=red]Council Tax[/COLOR]
[*]services you pay for, like cleaning or gardening
[*]other direct costs of letting the property, like phone calls, stationery, advertising[/LIST]
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027


Tenant pays utility bills and council tax. Exempt from council tax when property is vacant.
#16
Abz
Sorry to jump in but i have a question which is kind of related to this...

me and my wife are in a similar situation...we live in a 2 bed apartment but want to rent that out and buy a house. Can we use the flat as security on the mortgage instead of giving a large deposit...

In theory, yes absolutely. Slightly non-standard however, & you will need to seek a mtg provider willing to accept
#17
gerrygedder
In theory, yes absolutely. Slightly non-standard however, & you will need to seek a mtg provider willing to accept


but i would have to change the existing mortgage to a buy-to-let mortgage rite?
banned 1 Like #18
gerrygedder
You quoted, "inc: mortgage" in your advice. This is incorrect, and therefore "utter tosh".

The difference between interest and mortgage repayments can be signifificant, so the distinction is important.

I don't expect an apology.


Do grow up. No need to turn every thread into a testosterone filled argument!

On another note OP, like a business, if you can prove you have bought something for the property that was required, you can usually offset this against tax in any financial year. Keep all receipts - most important.

Depending on how much you are renting the property out for, minus interest on mortgage and other 'essential' purchases, as well splitting the income, you can usually get your tax down to a minimum amount.

The capital gains tax when you have finished with this arrangement is something to bare in mind however as it changes every five minutes, best to look at that at a later stage.
(Usually leaving the property empty for a time helps!)
#19
as it will no longer be yr princ' residence, yes
banned#20
Abz
Sorry to jump in but i have a question which is kind of related to this...

me and my wife are in a similar situation...we live in a 2 bed apartment but want to rent that out and buy a house. Can we use the flat as security on the mortgage instead of giving a large deposit...


No, not unless you make it liquid (by selling it).

And you are only entitled to LTV (loan to value) per property - strangely you can't have an average of both. (If you only have a 10% mortgage on the flat, you still have to have a deposit large enough to obtain the minimum LTV for the second property).

Unless you release equity in the flat to have liquid cash, you can't used use it against another property.
#21
JonnyTwoToes
Do grow up. No need to turn every thread into a testosterone filled argument!

On another note OP, like a business, if you can prove you have bought something for the property that was required, you can usually offset this against tax in any financial year. Keep all receipts - most important.

Depending on how much you are renting thing property out for, minus interest on mortgage and other 'essential' purchases, as well splitting the income, you can usually get your tax down to a minimum amount.

The capital gains tax when you have finished with this arrangement is something to bare in mind however as it changes every five minutes, best to look at that at a later stage.
(Usually leaving the property empty for a time helps!)

I think it's you who need to grow up. You are doling out inaccurate information on issues important to people.

As you have proven to be wrong, show a modicum of sense and zip it, instead of arguing your (non-sense) case.
1 Like #22
OP - Please bear in mind that you will need the express written consent of your mortgage company to be able to rent out the property, and they are also well within their rights, should it be considered that you intend to let out your property long term for them to make you redeem the mortgage and take out a buy-to-let mortgage in place of your current mortgage. Before going ahead with anything I would suggest that you speak to your mortgage provider who will be able to advise you on the best route to take - but note failure to do this could ultimately result in them demanding that you redeem the mortgage (pay it off) with no offer of another mortgage from them as you will be in breach of your mortgage conditions.
#23
JonnyTwoToes
No, not unless you make it liquid (by selling it).

And you are only entitled to LTV (loan to value) per property - strangely you can't have an average of both. (If you only have a 10% mortgage on the flat, you still have to have a deposit large enough to obtain the minimum LTV for the second property).

Unless you release equity in the flat to have liquid cash, you can't used use it against another property.


hmmm...interesting...

Maybe remortgaging the flat might be the way to go then!

Dont really want to sell the flat as we got a great price on it...its already gone up by 6k in 6 months
banned#24
gerrygedder
I think it's you who need to grow up. You are doling out inaccurate information on issues important to people.

As you have proven to be wrong, show a modicum of sense and zip it, instead of arguing your (non-sense) case.


I am currently in this situation (renting out one owned property and living in another owned property) and do all my finances through HSBC - it took a few months to get everything in place so I would suggest I do know a little about this.

Granted, I did not have to change my property over to a buy-to-let and I simply own two properties that have no collaboration with each other in terms of equity unless they are made liquid.

Sorry if this is contra to what you believe to be correct.
banned#25
cosmicdav3
OP - Please bear in mind that you will need the express written consent of your mortgage company to be able to rent out the property, and they are also well within their rights, should it be considered that you intend to let out your property long term for them to make you redeem the mortgage and take out a buy-to-let mortgage in place of your current mortgage. Before going ahead with anything I would suggest that you speak to your mortgage provider who will be able to advise you on the best route to take - but note failure to do this could ultimately result in them demanding that you redeem the mortgage (pay it off) with no offer of another mortgage from them as you will be in breach of your mortgage conditions.


This is 100% correct! Good advice.
#26
Abz
hmmm...interesting...

Maybe remortgaging the flat might be the way to go then!

Dont really want to sell the flat as we got a great price on it...its already gone up by 6k in 6 months


The most conventional way to deal with the situation you present is to:

- Take out a new buy-to-let mortgage on the flat you have, keep the LTV to a minimum to benefit from a lower interest rate and less risk in the event the property does not rent out as quickly as you hope - your mortgage payments wil be lower with a lower LTV

- If you currently have a personal mortgage on the flat, port this mortgage to your new property (this wil ensure you do not get peanalised for early repayment charges) and use the additional funds gained from talking the new mortgage on the flat to fund your deposit
banned#27
Abz
hmmm...interesting...

Maybe remortgaging the flat might be the way to go then!

Dont really want to sell the flat as we got a great price on it...its already gone up by 6k in 6 months


Yes, releasing equity is the best way to do it however make sure you keep under the correct LTV to get the bet mortgage deal.

Nice buy by the sounds of it - property will always be the best investment in my humble opinion.
#28
Remember that if interest rates increase your outgoings will increase.
If as some have said you can offset mortgage interest payments against income recieved the you are maybe better off with an interest only mortgage in such a circumstance.
I think I heard something yesterday that one lender was withdrawing interest only mortgages. Might have imagined it.... Worth a consideration anyway.
banned#29
gerrygedder;8603974
You quoted, "inc: mortgage" in your advice. This is incorrect, and therefore "utter tosh".

The difference between interest and mortgage repayments can be signifificant, so the distinction is important.

I don't expect an apology.

seems like it was obvious to all but you that I was referring to the interest element :whistling:

otherwise we'd all be renting our properties out after ensuring we had a 5 year repayment term lol :roll:
#30
cosmicdav3
The most conventional way to deal with the situation you present is to:

- Take out a new buy-to-let mortgage on the flat you have, keep the LTV to a minimum to benefit from a lower interest rate and less risk in the event the property does not rent out as quickly as you hope - your mortgage payments wil be lower with a lower LTV

- If you currently have a personal mortgage on the flat, port this mortgage to your new property (this wil ensure you do not get peanalised for early repayment charges) and use the additional funds gained from talking the new mortgage on the flat to fund your deposit


JonnyTwoToes
Yes, releasing equity is the best way to do it however make sure you keep under the correct LTV to get the bet mortgage deal.

Nice buy by the sounds of it - property will always be the best investment in my humble opinion.


Thanks for the adivce people....

but just a quick question the buy to let mortgages are they just interest only mortgages or are actuall repayments? or do you have an option for either?
banned#31
gerrygedder;8604022
In theory, yes absolutely. Slightly non-standard however, & you will need to seek a mtg provider willing to accept

utter tosh. You could only use any excess in the existing mortgage and current valuation.

or am I just being as pedantic as you :-D
#32
Abz
Thanks for the adivce people....

but just a quick question the buy to let mortgages are they just interest only mortgages or are actuall repayments? or do you have an option for either?


Buy to let offer the option of interest only or capital repayment, however there is one 3rd option worth persuing. If you were to take the mortgage on an interest only mortgage then overpay the mortgage (this can be done on most buy to let's) by a certain amount each month then this would buid up a surplus fund which can be drawn back at any time, this is useful if you want to keep some money aside for unexpected costs i.e. the boiler breaks and has to be replaced, or you have a void period (time between old tenants moving out and new ones moving in when you have no rent coming in) as it may allow you (subject to the sum of the overpayment fund) to take a payment holiday.

Doing it this way (overpaying) is a useful way of in theory putting yourself on capital repayment but not with the oblgation to have to pay the capital every month - usually lenders will deduct the overpayments from interest charges so you pay less interest whilst they have the overpayment fund.
[mod][Moderator] 1 Like #33
cosmicdav3
OP - Please bear in mind that you will need the express written consent of your mortgage company to be able to rent out the property, and they are also well within their rights, should it be considered that you intend to let out your property long term for them to make you redeem the mortgage and take out a buy-to-let mortgage in place of your current mortgage. Before going ahead with anything I would suggest that you speak to your mortgage provider who will be able to advise you on the best route to take - but note failure to do this could ultimately result in them demanding that you redeem the mortgage (pay it off) with no offer of another mortgage from them as you will be in breach of your mortgage conditions.


thanks, we have approached them and in principle have agreed to let us, they are putting it in writing,:thumbsup:
banned#34
Abz
Thanks for the adivce people....

but just a quick question the buy to let mortgages are they just interest only mortgages or are actuall repayments? or do you have an option for either?


You may not have to go the buy to let mortgage route - check the options with the bank.

I managed to get mine sorted without having to go the buy to let route. Every year, HSBC simply agree to the term of having it rented out for a further twelve months, This way, I managed to get a very good deal based on the usual mortgages that you'd have for any other circumstance. LTV of this is only about 50% though so worth checking. :thumbsup:

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