Tax paid on rental income

Discussion in 'Finance, Property, Law' started by ipaq, May 26, 2007.

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  1. I have bought a house back in the UK last Year and have started to rent out via a letting agency. I was surprised to find the gov had taken £100 tax from my rental income because I'm serving in Germany. My rental income does not even cover the mortgage costs per month. The question: Are the government within their rights do this? and can I claim back tax I have paid already? Any help gratefully received.
  2. I think the clue is the word 'Income'. Any income, however it is made is taxable
  3. i do not understand why you have paid £100 in tax to rent out your house, i think what you might have paid is £100 to your mortgage lender who sometimes charge a fee when you rent out your house (£100 is about the average)

    Your morgage im assuming is a repayment mortgage, ie capital and interest, the interest part which will proballby be the bulk of your monthly payment can be offset against your rental income, also if your place is furnished then another 10% can be offset against wear and tear.

    basicly if its your only house and your renting it out for less than your mortgage you shouldnt be paying any tax on it. The only thing you need to do is tell your mortgage lender (this will be the £100 youve payed i think),
    tell the company youve got your home insurance with (they might charge you a bit extra) keep any reciept for repairs to the property you have made and keep your yearly mortgage statements safe. Once a year contact your tax office, fill in a tax return or pay an accountant £100 to do it for you.

    Declaring it to the tax man even if you have no tax to pay is important if you intend to do this for a good few years as it will reduce your capital gains liability when you come to sell. If your going to move back into the house one day and it will be your main residence then do none of the above, keep schtum , dont declare anything and when your ready to move back in just kick your tenant out and off you go.

    one last thing, if your renting through an agency im assuming they found you a good tenant and are now charging 10 percent of the rental income to manage the property for you, well **** them off , go and see your tenant and get them to pay you direct, preferably cash or if not then into your uk bank account. but to answer your original question, you should not be paying any tax unless your rental income is about 20 percent a year more than your mortgage.
  4. I have just done this and you do pay tax on any income from rent. The rental agant has to deduct 22% from any rental income and give it to the tax man, and then you will have to claim it back at the end of the tax year. However, you need to apply for a Non-resident Landlord Status (NRL1) form the tax man. These forms are on-line and they exempt you from paying tax direct from your income. Again though, you will have to do a tax return at the end of the year and try to keep the extra 100 a month, this is were you need to keep all recipts. My friend tried to write off his rental income against his mortgage and was told that mortgage payments are not tax deductable. Good luck.
  5. I dont mean to sound like a smug bastard but i will bet the five houses i rent out that you can offset your mortgage interest payments against your rental income for tax reasons, oh and if you dont believe me ill give you the address of my accountant.
  6. And whilst im at it remember its your house, letting agencys are in general cheeky rip off barsteward, they will charge you 10 - 15% of YOUR rental income to basicly collect the rent, also if there are any repairs to be made and they handle it you will pay top dollar for the work done and then they will add a bit for themselves too. when ive used them in the past ive paid a one off fee for them to find/vet a good tennant then took over rent collection myself.
    i have a crowbarr policy, tenant pays rent or i crowbar the door off put all there belongings in the street and change locks, and i tell them this when they move in, illegal and wrong yes i know but there my houses and i want my rent. If your away with the mob this isnt practical but you could get a family member to call round and collect the rent or get them to pay direct into bank account and save yourself 15% of your rental income, if they have found you the tenant they will prob be ok , good reliable tennants are worth their weight in gold. dont let rental agency tell you what going on, its your house , you tell them how its going to be. I have never heard of a rental agent deducting tax at source as another poster has stated, since when are rental agents tax collectors and if this is true id be straight round there sharpest.

    another thing and im probalbly coming across as an evil monster in this post but its business you see and moneys involved, most tennants dont have a clue about the law and their rights and believe me they do have a lot of rights now, renting out property is a good idea if your away but the overiding factor is the tenant, a bad tennant who dosent pay and knows their rights are like a really bad expensive painfull marriage it really is all about the quality of tenant, right off to crowbar a door off.
  7. The interest element of mortgage repayments is an allowable expense for tax purposes. The capital element is not an allowable expense.
  8. Sorry Iaamaviking, just seen that you made this point earlier on.

    BTW, with reference to wear & tear, you have the option of:
    1) claiming 10% of the rental income per year; or
    2) claiming for the actual costs of replacement items.

    Once you have chosen one of these options, you can't usually change for that particular property. Most people prefer the 10% option - fewer receipts, expense goes up with income, tax more predictable, etc.
  9. I may have missed something but if the house is designated your primary residence and therefore tax free on any capital gain you cannot claim relief on your mortgage payments against income. For a civvy anyway.

    However I thought there was some sort of dispensation for the regular army (since you are moved around a lot) where the income could be offset. Only a vague thought, well out of my area of expertise.
  10. Sorry, I should have mentioned, the tax deducted at source is only if you live overseas.. If you could give me your tax specialists details I will pass them onto my mate, and probably use them myself, as I'm in the market to save some money.

  11. Ipaq,

    Unless the rules have changed recently (and I do not believe they have) the letting agency has no right to deduct any income tax from your rental income as, for tax purposes, you, a member of HM Forces, are deemed to be permanently resident in the UK.

    Tax on any rental income will be calculated annually, by HMIT, on submission of a completed self-assessment tax form.

    Change your agent or explain to them the facts - I'm sure there is a leaflet that sets the position for HM Forces.

  12. I had a similar problem with an agency a couple of years ago whilst renting a property out whilst on LFS in Holland.
    The respectable agency forgot to tell me that they will deduct tax from source from the rental income,they also failed to tell me was i could opt out of this and pay the tax myself via self assesment or a decent accountant.Talk to your letting agency and ask about opting out, they stung me for about £400 which i reclaimed a year later via self assement.
    if your rental income is below your mortgage you shouldnt pay tax but you cant include endowment payments with your mortgage payment.

    I quickly realised that i was paying to much for the full management of the property,true the company did get me some decent tenants but i was the one doing all the running around getting repairs done etc which should of been there job,i reduced there fees to rent collection only.The muppets also tried to tell me that if i thought about a private agreement with the rentor i would owe them a finders fee .i laughed at that.
  13. I have 2 properties the one I live in and the one that I rent. You shouldn't pay tax as long as you decalre your stuff to the tax man. I.e you should have accounts that show that your "income" covers your payments. anything over means you will be susceptable to tax.

    Contact your local office get tax savvy and remember to cover your profit with essential maintenance work. (wink) My house gets decorated every 6 months if I can help it. Nuff said. PM if you need further help. remember play the government game - After all it's them that are profiting legally!
  14. The other slight turd that annoys me is that if you make a loss with rental income over a year, you cannot offset it against salary income and thereby claim tax back. All you can do is carry that loss forward to the next year but again only in the property income bracket.
  15. The 10% wear and tear allowance is only allowable by HMRC for fully furnished properties. Landlords of part or unfurnished properties have to claim for renewals (not initial purchase costs) of furnishings, repairs, white goods etc.