First Time Landlord Questions

[berneslai]

Hi all,

I have relocated to Sussex (renting, not buying) and left my property behind in Yorkshire after owning, and living in it, for 10 years. I have put my property up for rent and have my first tenant moving in in August.

Can I just clarify a (noddy) tax question with the wise of this forum? There is currently £120 difference between my mortgage and the rental income I will receive. I am currently a higher rate tax payer, my fiancee is unemployed and pays no tax. The mortgage on the rental property is joint and we are not married (yet).

Would I be right in thinking that the tax payable is simply the difference between the mortgage and the rental income, divided by two and with the relevant tax rate applied - i.e. £60 x 40% for me and £60 x 0% for my partner (as this income will not take her over yearly tax allowance).

Can someone confirm that the above is correct and offer any advice on the most efficient tax method to organise our affairs in the future?

Thanks,
B

[Snorkerz]

Tax is payable on all of your rental income. However there are numerous 'allowances' you can claim - you probably already claim 'personal allowance'. One of those allowances is mortgage interest - not necessarily the same as mortgage payments.

I am not an expert in tax but I would guess it would make sense for you to claim 100% of the mortgage interest against your tax as there would be no benefit to your fiancée having 50% of it.

[Claymore]

If the difference between mortgage interest and rental income is only £120 per month, I would be amazed if you have to pay any tax whatsoever after taking into account all the regular allowances plus maintenance etc. Also, Sussex to Yorkshire is quite a lot of miles. £0.45 per mile (round trip) for visiting the property for inspections etc.

[TaxationPete]

To clarify "Tax is payable on all of your rental income" is not quite right tax is payable on the rental 'profit' after all allowable expenses. Are you using a letting agent. Regards Peter

[berneslai]

To clarify "Tax is payable on all of your rental income" is not quite right tax is payable on the rental 'profit' after all allowable expenses. Are you using a letting agent. Regards Peter

Blimey, this is more of a minefield than I thought. I'm really only renting my property out due to living in an area where house sales are particularly low (lack of employment nearby) and not wanting to pay council tax on an empty property every month.

My mortgage is on a variable rate and costs circa £460. My rental income is £650 of which the lettings agent takes 10%.

I wrongly assumed that I could offset the entire mortgage payment, although in hindsight I understand that this would be wrong from a tax perspective as someone would be directly paying for my equity. With CGT also on a future sale, I'm beginning to think that I may have made a mistake.

[King_Maker]

You should not have any CGT to pay for a few years with the last36 months of ownership treated as exempt plus Lettings Relief (up to £40,000 per owner.

Have you read HMRC's Help Sheet HS283 on the subject?

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

[TaxationPete]

Do you have permission to rent the property out from your mortgage provide. It is a material change and permsiion must be sought. Your travel to the property is restricted to the distance from the letting agent to the property not from your home. Regards Peter

[berneslai]

Do you have permission to rent the property out from your mortgage provide. It is a material change and permsiion must be sought. Your travel to the property is restricted to the distance from the letting agent to the property not from your home. Regards Peter

Yes I do. Scottish Widows are my mortgage provider and have provided a "side letter" allowing me to rent the property at a cost of £400 per annum. Again, I was hoping this would be an allowable expense!

[theartfullodger]

Don't wish to be gloomy but you seem to be assuming you will get the rent... Hope you don't get the tenant-from-hell (or the letting-agent-from-hell) (or, indeed, the "rent-guarantee-scheme-from-hell). ONLY rent out if you have the emotional & financial resources to cope with these whilst paying mortgage & legal fees to evict & repair costs (oh yes, or judge will conclude you're harassing tenant & let them stay longer..)

Cheers & welcome to the fun world of lettings....

[Gordon999]

The method of calculating your annual rental profit is -

Rental income = 650 x 12 months = 7800

Allowable expenses =

letting agent at 10% = 780
Mortgage loan interest at say 350/month = 350 x 12 = 4200
Buildings insurance = 400 say

Annual profit = 7800- 780-4200-400 = 7800 - 5380 = 2420 or 1210 if shared equally.

So you would pay tax at 40% = 1210 x 0.4 = 482.50

Your partner has personal tax allowance of 8105 and pays no tax.

If you and your partner write a simple agreement to give ALL the rental profit to your partner and both sign it , your partner could send it with a tax return to hmrc and not have any tax to pay.

But before you decide to let , you need to check the local estate agents on the state of the letting market in your area and the average waiting time for a tenant.

[monsterp]

Yes I do. Scottish Widows are my mortgage provider and have provided a "side letter" allowing me to rent the property at a cost of £400 per annum. Again, I was hoping this would be an allowable expense!

Does £400 seem high to anyone else? I pay Alliance & Leicester £95 for mine.