Do I need to pay income tax, if I make no profit?

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    Do I need to pay income tax, if I make no profit?

    Hi everyone, I have a mortgage on a property. My wife and I intended to live there and got the mortgage in our names. However just over a year later we decided we need to move out, because we had a baby and needed more space. We rented the property out.

    The rent is £1400, and there is service charge each year of just over £3000. The mortgage I pay is £1350. Meaning that although I take in £600 profit a year, it's quickly blown on the service charge, so I am 'investing' £2400 every year into this property (which I plan to sell in about 2-3 years).

    I believe I do not need to pay income tax on this, but my question is, do I need to complete a self assessment? Or complete any other sort of process?

    Thank you so much in advance.

    #2
    Only mortgage interest is a permitted expense.

    Buy a book on property tax. There are more than 10 taxes a landlord may pay.
    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...

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      #3
      You're taxed on income rather than profit (although it's usually the same thing).
      Your mortgage payment looks like it's a repayment mortgage, and if it is, the repayment element isn't allowed as an expense against tax although the interest element is.
      You'll need a mortgage statement showing the split.

      HMRC will advise whether or not you need to complete a tax return - and you are obliged to report the new source of income in any case.

      Presumably, your mortgage lender is happy for you to let the property?
      I'd have thought it might be worth switching to an interest only BTL mortgage.
      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).

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        #4
        interesting what do you pay the service charge for if its a house ? and yes you will still need to complete a tax return - you can claim for a partial of the interest - the government have changed this recently as they are graduallty phasing it out -
        Sometimes you may even make a loss and you can carry the loss element over -
        Hopefully you will have done all the necessary things like protecting the deposit in an approved scheme, gas safety cert, special insurance for BTL , ect ect

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          #5
          Is that rent £1400 per month ?

          If the rental income is £1400 per year, this will be equal to £27 per week and figure does not look right. ?

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            #6
            as above
            mortgage will need to be split between interest and repayment, repayment not tax deductible.

            service charge if not passed on to tenant fully deductible.

            Still need to declare loss to HMRC, in your case you will report a loss and just carry forward that losss. if you never make a profit or deiced to rent out at alot more and begin to make profit you can use losses carry foeward

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