accidental landlord - tax issue

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    accidental landlord - tax issue

    Hello, I am an accidental landlord and I have just read something that is really worrying.

    Back story - We purchased a property in 2008 which fell into negative equity. It was a 1 bedroom property which we quickly outgrew as we went on to have twins in 2013. The mortgage company were unlikely to agree to us letting the property due to neg equity so rightly or wrongly we got another mortgage and let the property out using a letting agent (a financial advisor did all this for us). We thought we were only going to do this very short term and then sell the property but 6 years on we are still renting it. It's always bothered me and we now have enough equity in the property we live in to pay a large amount off the rental and get it on a legitimate BTL mortgage when we come to the end of our mortgage deal with the home we live in this June.

    I thought that was that.....but as I have just been doing some reading on taxes as we are moving to a BTL repayment I have just discovered that I should have been declaring this rental to the HMRC!! I assumed (wrongly) that as the mortgage interest payments were around £470 a month and the rent was £520 a month and agents fees £60 a month it didn't need to be decared as we were making a loss but i'm just reading that from 2017 the laws have changed and you cant deduct mortgage interest!!! Am i right in saying that the £470 in interest is no longer deductable??? What should I do?? I feel like this is a much bigger problem than I first thought (i'm self employed but my gross amount is less than 12k a year) Help - i'm at my wits end and just want to come clean with it all

    #2
    Yes, you should have been declaring the income since you let the property out.
    You wouldn't have had to pay any tax, because the interest and fees would be allowed against (i.e. deducted from) the income and that would have resulted in no tax being due.

    The change in 2017 doesn't mean that you can't deduct the mortgage interest, just that the deduction is capped at the basic rate of tax - which won't change your position at all - just the method of working it out changes.

    The problem is that you should have been declaring this to HMRC for six years and not declaring the income and completing some kind of tax return is a problem all of its own.
    However, I wouldn't worry about it too much, the worst that can happen is a fine, and I doubt that that will happen.

    HMRC have an amnesty scheme in place for people in your situation.
    Details here - https://www.gov.uk/government/public...g-a-disclosure
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      What is more likely to happen is that they require you to complete tax returns for the last six years.

      Comment


        #4
        I have completed tax returns for my self employment but stupidly didn't think of the rental as income?! My job tomorrow is to phone an accountant! Will the mortgage interest tax issue affect us because my husband earns around £40k a year? Thanks - I can't believe how naive i've been ! I knew we weren't playing by the rules in regards to letting the property out (but felt trapped) but had no idea about the tax side of it

        Comment


          #5
          Originally posted by pineapple11 View Post
          I have completed tax returns for my self employment but stupidly didn't think of the rental as income?!......
          Nothing more to add, really.....

          I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

          Comment


            #6
            If you have submitted tax returns without the rental income you are more likely to get a fine.

            Go and see an accountant and they'll sort it out for you (and minimise the issues with HMRC).

            What impact it has on your husband, depends if he's the landlord or not.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              Originally posted by jpkeates View Post
              What impact it has on your husband, depends if he's the landlord or not.
              Doesn't it depend more on what beneficial interest he has in the property?

              Comment


                #8
                Originally posted by theartfullodger View Post
                Nothing more to add, really.....
                Ok maybe worded this incorrectly, I did see it as income however when we first let the property out I was led to believe if annual profit was less than £1000 then I didn't need to contact HMRC. If above £2500 I was to let them know. I now know that I should have looked into this further. Suffering the concequences now...



                Thanks for your advice everyone - My husband is joint landlord so i'm guessing he is liable for 50% of the tax. Based on my husband earning 40k before tax and me around 9k net is the 2017 tax law likely to affect us? The amount of interest we were paying plus agent fees and landlord insurance is more than the rental income.

                Also, what sort of fine am I likely to incurr - i've submitted my self assessments for my self employment since 2015.



                Comment


                  #9
                  Just an update for anyone who is in a similar situation. After seeking advice from an accountant I called the HMRC disclosure telephone number and explained the situation. They weren't as scary as I thought they'd be more than likely because i'd approached them. They advised that both me and my husband complete a form online disclosing the information and specifying how much of a fine we think we should pay depending on the reason for witholding information and the fine would be a percentage of the total profit. I explained that I had always made a loss and the advisor said that I wouldn't have to pay a fine - just submit the last 6 years on self assessments. Thanks everyone for the advice. I have asked the accountant to submit my taxes going forward to avoid anymore silly mistakes.

                  Comment


                    #10
                    If the gross rent is £520 per month and your letting agent is deducting £60 per month and your mortgage interest is costing £470 per month, then in addition , you have paid for annual building insurance plus extra costs for some property maintenance , you may have been bearing a loss in each year up to 2017 and this accumulated loss can be used to offset the profit during the last 2 years.

                    So if you are preparing to submit tax returns for each of the last six years , make sure to carry forward the losses made from one year to the next year .

                    Comment


                      #11
                      Originally posted by pineapple11 View Post
                      Just an update for anyone who is in a similar situation. After seeking advice from an accountant I called the HMRC disclosure telephone number and explained the situation. They weren't as scary as I thought they'd be more than likely because i'd approached them. They advised that both me and my husband complete a form online disclosing the information and specifying how much of a fine we think we should pay depending on the reason for witholding information and the fine would be a percentage of the total profit. I explained that I had always made a loss and the advisor said that I wouldn't have to pay a fine - just submit the last 6 years on self assessments. Thanks everyone for the advice. I have asked the accountant to submit my taxes going forward to avoid anymore silly mistakes.
                      As you made a loss, maybe suggest HMRC send you a fine?

                      Comment


                        #12
                        Thanks Gordon I will make sure I do this

                        Jk0 - if only just finished my expenses for the first year - 5 more to go

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