House Rental Deficit

[rfisher]

What happens if the rent you get on a house is less than the costs incurred?

For example (made up figures):

Mortgage interest £500 pcm
Management fees £50 pcm
Repairs (average) £10 pcm

Rental income £400 pcm

So you're having to pay £160 pcm to the mortgage per month.

Apart from not paying any tax on the rental income (which you would if the rent was £161 pcm more), and not making a profit, is there any problem with this?

[scotal]

You're buggered when you come to remortgage.

ETA, if you've not yet bought the place and are thinking of buying, it wont fit BTL lender criteria.

Edited by scotal on Friday 30th April 15:28

[Beardy10]

The only problem is that it doesn't sound like a great investment. No tax to pay though.

[SJobson]

rfisher said:

is there any problem with this?

Rhetorical question, I assume.

[Eric Mc]

No tax to pay in the year the loss was incurred and the loss can be carried forward to the next and future tax years for offset against any future rental profits from the same property.

[quotemehappy]

Eric Mc said:

No tax to pay in the year the loss was incurred and the loss can be carried forward to the next and future tax years for offset against any future rental profits from the same property.

Could the individual not offset the losses on the rental property against any PAYE income/tax they have in the same tax year or is this not possible?

[Eric Mc]

quotemehappy said:

Eric Mc said:

No tax to pay in the year the loss was incurred and the loss can be carried forward to the next and future tax years for offset against any future rental profits from the same property.

Could the individual not offset the losses on the rental property against any PAYE income/tax they have in the same tax year or is this not possible?

No it's not offsetable in that manner - unless the property income is related to UK holiday lets rather than a simple buy to let.

Setting off of TRADING losses against other income in the same tax year is allowed. Income from buy to lets is defined as a form of "investment income" and has different loss relief rules.

On the subject of UK Holiday Lets, for many years these were defined as being of a "trading nature" so were eligible for most of the additional tax reliefs applicable to trading income. In the last budget, Darling anounced that the special treatment of Holiday Let income would end on 5 April 2010. From 6 April 2010 UK Holiday Lets would be treated just like normal rental income. However, a couple of weeks ago, this change was silently dropped from the budget legislation. I wonder why?

[quotemehappy]

Eric Mc said:

quotemehappy said:

Eric Mc said:

No tax to pay in the year the loss was incurred and the loss can be carried forward to the next and future tax years for offset against any future rental profits from the same property.

Could the individual not offset the losses on the rental property against any PAYE income/tax they have in the same tax year or is this not possible?

No it's not offsetable in that manner - unless the property income is related to UK holiday lets rather than a simple buy to let.

Setting off of TRADING losses against other income in the same tax year is allowed. Income from buy to lets is defined as a form of "investment income" and has different loss relief rules.

On the subject of UK Holiday Lets, for many years these were defined as being of a "trading nature" so were eligible for most of the additional tax reliefs applicable to trading income. In the last budget, Darling anounced that the special treatment of Holiday Let income would end on 5 April 2010. From 6 April 2010 UK Holiday Lets would be treated just like normal rental income. However, a couple of weeks ago, this change was silently dropped from the budget legislation. I wonder why?

Lots of MPS probably having second homes/holiday homes not wanting to tax themselves when they are no longer in power; or perhaps lobbyists got it dropped in a last second bid before parliament broke up?

[Eric Mc]

It was the latter really.

The definition of a "holiday let" is extremely wide. Holiday homes on a commercial site, like a holiday park, would have found themselves severely disadvantaged compared to campsites or parkhome sites. Also, many farms supplement their farming income by letting holiday cottages on the farm.

The trouble is that Labour wanted to tax individuals who were letting second properties as holiday homes but not businesses who were running bona fide holiday properties and holiday villages. It proved too difficult to separate the two types of operation legally.