BTL house and tax - anyone help please?
Discussion
Im hoping someone can shed some light for someone with little knowledge of tax etc
I (and the wife) am employed, and on PAYE. As a result, work do my taxes, I have never done a tax return.
We are about to rent our current property out, whilst buying a second place, running two mortgages side-by-side. Both properties on repayment mortgages.
I have been told I will need to pay tax on the rental property.
The mortgage is £510 per month. Of this, £375 is the interest, the other £145 is the 'repayment' part. The rental income will be £500 per month.
I have been told (rightly or wrongly) that I will need to pay tax on some of this, but I have no idea, what, how to do so, or how much it is likely to cost me, and when I will have to pay it.
Can anyone throw a bit of guidance my way please?
I (and the wife) am employed, and on PAYE. As a result, work do my taxes, I have never done a tax return.
We are about to rent our current property out, whilst buying a second place, running two mortgages side-by-side. Both properties on repayment mortgages.
I have been told I will need to pay tax on the rental property.
The mortgage is £510 per month. Of this, £375 is the interest, the other £145 is the 'repayment' part. The rental income will be £500 per month.
I have been told (rightly or wrongly) that I will need to pay tax on some of this, but I have no idea, what, how to do so, or how much it is likely to cost me, and when I will have to pay it.
Can anyone throw a bit of guidance my way please?
Basically
Profit = Turnover Minus costs
Turnover is what they pay you
Costs are interest but not repayments
Costs are insurance and letting agent fees and repairs (but not improvements)
Costs might be the 45p a mile you pay yourself for visits to do the repairs, the cost of the paper and printer cartidges to print the contract etc.
Interestingly, the more of the capital you repay, the less interest you will pay, and the more tax you will pay
Profit = Turnover Minus costs
Turnover is what they pay you
Costs are interest but not repayments
Costs are insurance and letting agent fees and repairs (but not improvements)
Costs might be the 45p a mile you pay yourself for visits to do the repairs, the cost of the paper and printer cartidges to print the contract etc.
Interestingly, the more of the capital you repay, the less interest you will pay, and the more tax you will pay
You only pay tax on the profit element of the rent income. Everything else is tax deductible (eg mortgage interest, agents fees, insurance, 10 per cent annual wear and tear allowance, maintenance, legal costs etc). You'll need to keep records. I suggest you run a separate bank account for rental income and expenditure,
You will need to complete a tax return and be able to produce mortgage interest certificates and all receipts if requested. I strongly recommend you use an accountant to advise you and prepare your tax return and deal with HMRC enquiries on your behalf. Of course you can deduct these professional fees from your profits and reduce your tax bill even further. An professional advisor will also work out how best utilise your other personal allowances and those of your spouse.
It may even be worthwhile remortgaging your rental property on an interest-only mortgage to further reduce your tax liability. Seek professional advice on this.
You will need to complete a tax return and be able to produce mortgage interest certificates and all receipts if requested. I strongly recommend you use an accountant to advise you and prepare your tax return and deal with HMRC enquiries on your behalf. Of course you can deduct these professional fees from your profits and reduce your tax bill even further. An professional advisor will also work out how best utilise your other personal allowances and those of your spouse.
It may even be worthwhile remortgaging your rental property on an interest-only mortgage to further reduce your tax liability. Seek professional advice on this.
Edited by audidoody on Monday 15th April 23:23
audidoody said:
You will need to complete a tax return and be able to produce mortgage interest certificates and all receipts if requested. I strongly recommend you use an accountant to advise you and prepare your tax return and deal with HMRC enquiries on your behalf. Of course you can deduct these professional fees from your profits and reduce your tax bill even further. An professional advisor will also work out how best utilise your other personal allowances and those of your spouse.
It may even be worthwhile remortgaging your rental property on an interest-only mortgage to further reduce your tax liability. Seek professional advice on this.
This but if the property was jointly held with your wife then you will both be taxed on half of any surplus so both will need tax returns.It may even be worthwhile remortgaging your rental property on an interest-only mortgage to further reduce your tax liability. Seek professional advice on this.
Edited by audidoody on Monday 15th April 23:23
I have sent you a PM.
David
broken biscuit said:
Im hoping someone can shed some light for someone with little knowledge of tax etc
I (and the wife) am employed, and on PAYE. As a result, work do my taxes, I have never done a tax return.
We are about to rent our current property out, whilst buying a second place, running two mortgages side-by-side. Both properties on repayment mortgages.
I have been told I will need to pay tax on the rental property.
The mortgage is £510 per month. Of this, £375 is the interest, the other £145 is the 'repayment' part. The rental income will be £500 per month.
I have been told (rightly or wrongly) that I will need to pay tax on some of this, but I have no idea, what, how to do so, or how much it is likely to cost me, and when I will have to pay it.
Can anyone throw a bit of guidance my way please?
Have you got 'Consent To Lease' from your current lender or taken out a BTL mortgage (technically this is a Let-to-Buy product)?I (and the wife) am employed, and on PAYE. As a result, work do my taxes, I have never done a tax return.
We are about to rent our current property out, whilst buying a second place, running two mortgages side-by-side. Both properties on repayment mortgages.
I have been told I will need to pay tax on the rental property.
The mortgage is £510 per month. Of this, £375 is the interest, the other £145 is the 'repayment' part. The rental income will be £500 per month.
I have been told (rightly or wrongly) that I will need to pay tax on some of this, but I have no idea, what, how to do so, or how much it is likely to cost me, and when I will have to pay it.
Can anyone throw a bit of guidance my way please?
To update -
We cannot switch to a Buy to Let mortgage due to the LTV - insufficient equity.
We are in the process of securing the best rate available for a long-term fixed rate - 4.49% fixed for 5 yrs. This is what my figures are based on. I would like better, but its not going to happen.
Once the fixed rate is secured, the Consent to lease application will be submitted. If I do it now, whilst on the SVR, they will lock it onto their (mortgage provider) Consent to lease fixed rate of 5.79%. Way too high, so I have to do it in the correct order to get the benefit of the better rate. (all of this has already been confirmed in writing as possible, and permitted by a member of the mortgage team at the provider).
We cannot switch to a Buy to Let mortgage due to the LTV - insufficient equity.
We are in the process of securing the best rate available for a long-term fixed rate - 4.49% fixed for 5 yrs. This is what my figures are based on. I would like better, but its not going to happen.
Once the fixed rate is secured, the Consent to lease application will be submitted. If I do it now, whilst on the SVR, they will lock it onto their (mortgage provider) Consent to lease fixed rate of 5.79%. Way too high, so I have to do it in the correct order to get the benefit of the better rate. (all of this has already been confirmed in writing as possible, and permitted by a member of the mortgage team at the provider).
As there appears to be a few in the know here...a couple of questions.
1) can you roll over costs rom one tax year into the next if the is no income to offset against. eg: BTL bought in Dec 12, no rental income until May 13, can you offset costs incurred until April 13 against tx year 2013-14 income? Think I know the answer.
2) What constitutes repairs & what improvements. Is a replacement higher grade of carpet a repair or improvement?
3)Does the timing of he repair determine if it is allowable. eg Do repairs undertaken before a place is first let constitute an improvement?
1) can you roll over costs rom one tax year into the next if the is no income to offset against. eg: BTL bought in Dec 12, no rental income until May 13, can you offset costs incurred until April 13 against tx year 2013-14 income? Think I know the answer.
2) What constitutes repairs & what improvements. Is a replacement higher grade of carpet a repair or improvement?
3)Does the timing of he repair determine if it is allowable. eg Do repairs undertaken before a place is first let constitute an improvement?
GT03ROB said:
As there appears to be a few in the know here...a couple of questions.
1) can you roll over costs rom one tax year into the next if the is no income to offset against. eg: BTL bought in Dec 12, no rental income until May 13, can you offset costs incurred until April 13 against tx year 2013-14 income? Think I know the answer.
2) What constitutes repairs & what improvements. Is a replacement higher grade of carpet a repair or improvement?
3)Does the timing of he repair determine if it is allowable. eg Do repairs undertaken before a place is first let constitute an improvement?
Not really possible to give a full response (it would take a while and its how I earn my living!) but:1) can you roll over costs rom one tax year into the next if the is no income to offset against. eg: BTL bought in Dec 12, no rental income until May 13, can you offset costs incurred until April 13 against tx year 2013-14 income? Think I know the answer.
2) What constitutes repairs & what improvements. Is a replacement higher grade of carpet a repair or improvement?
3)Does the timing of he repair determine if it is allowable. eg Do repairs undertaken before a place is first let constitute an improvement?
1) If the property was "available" to rent or you were actively seeking a tenant, then yes.
2) Thats the tricky part - actually a carpet is a carpet so no difference. You are allowed to replace anything on a like for like basis and if the modern equivalent is improved then its still allowable ie double glazing is now allowed if replacing single glazing! If you were to rip out a bath and put a top of the range jacuzzi, then that may be an issue.
3)Repairs prior to the first let are not allowable - they are deemed to be capital but would qualify as a cost for CGT purposes.However most costs incurred between lets are wholly allowable.
Feel free to PM if you want further guidance.
David
sumo69 said:
Not really possible to give a full response (it would take a while and its how I earn my living!) but:
1) If the property was "available" to rent or you were actively seeking a tenant, then yes.
2) Thats the tricky part - actually a carpet is a carpet so no difference. You are allowed to replace anything on a like for like basis and if the modern equivalent is improved then its still allowable ie double glazing is now allowed if replacing single glazing! If you were to rip out a bath and put a top of the range jacuzzi, then that may be an issue.
3)Repairs prior to the first let are not allowable - they are deemed to be capital but would qualify as a cost for CGT purposes.However most costs incurred between lets are wholly allowable.
Feel free to PM if you want further guidance.
David
Cheers David that answers it nicely 1) If the property was "available" to rent or you were actively seeking a tenant, then yes.
2) Thats the tricky part - actually a carpet is a carpet so no difference. You are allowed to replace anything on a like for like basis and if the modern equivalent is improved then its still allowable ie double glazing is now allowed if replacing single glazing! If you were to rip out a bath and put a top of the range jacuzzi, then that may be an issue.
3)Repairs prior to the first let are not allowable - they are deemed to be capital but would qualify as a cost for CGT purposes.However most costs incurred between lets are wholly allowable.
Feel free to PM if you want further guidance.
David
2thumbs said:
Call the tax office. We have just been through this & it turned out so simple. Basicaly my wife rang them & explained what we were doing & how much rent we were charging, they just said thank you & altered her exisiting tax code. No forms, just a 5 min call.
Nice that HMRC encourages taxpayers to break the law.HMRC regulations state that anybody deriving rental income from a property is obliged to notify them and complete self assessment tax return forms to cover the rental profits OR losses and the subsequent capital disposal when the property is sold.
The main exceptions to this are when the rental income is received under the Rent a Room scheme or through some of the options available under various social caring schemes.
broken biscuit said:
Once the fixed rate is secured, the Consent to lease application will be submitted. If I do it now, whilst on the SVR, they will lock it onto their (mortgage provider) Consent to lease fixed rate of 5.79%. Way too high, so I have to do it in the correct order to get the benefit of the better rate. (all of this has already been confirmed in writing as possible, and permitted by a member of the mortgage team at the provider).
That sounds quite a high risk strategy to me what if they turn around after the fixed rate is secure and say no? they are not soft they will see what you have done to avoid paying the higher rate. Also I thought consent to lease was only offered for a short period of time? I know in the past they gave me consent to lease but for a maximum of 12 months and then I had to go over the a BTL, they always want you on a btl as the rates are higher.
BoRED S2upid said:
That sounds quite a high risk strategy to me what if they turn around after the fixed rate is secure and say no? they are not soft they will see what you have done to avoid paying the higher rate.
Also I thought consent to lease was only offered for a short period of time? I know in the past they gave me consent to lease but for a maximum of 12 months and then I had to go over the a BTL, they always want you on a btl as the rates are higher.
I have an email from the mortgage provider confirming if I am in a fixed rate I can keep it on the Consent to lease, which is available for 3 yrs. If they dont approve it, I have to tweak my plans, but I am fortunate that I am in a position whereby the other property I have is owned by family, so there is no real rush to move the mortgage etc over. When I spoke to the Consent to lease team on the phone, they said I had to be in a fixed rate as I am currently on the SVR, and then they would submit the application. That is what I am now doing. Hopefully it will all work out. I dont have much choice since my house isnt selling.Also I thought consent to lease was only offered for a short period of time? I know in the past they gave me consent to lease but for a maximum of 12 months and then I had to go over the a BTL, they always want you on a btl as the rates are higher.
Eric Mc said:
2thumbs said:
Call the tax office. We have just been through this & it turned out so simple. Basicaly my wife rang them & explained what we were doing & how much rent we were charging, they just said thank you & altered her exisiting tax code. No forms, just a 5 min call.
Nice that HMRC encourages taxpayers to break the law.HMRC regulations state that anybody deriving rental income from a property is obliged to notify them and complete self assessment tax return forms to cover the rental profits OR losses and the subsequent capital disposal when the property is sold.
The main exceptions to this are when the rental income is received under the Rent a Room scheme or through some of the options available under various social caring schemes.
We pay roughly £25 per month tax on our rental income.
Op, ring the tax office, they are very helpful.
2thumbs said:
Eric Mc said:
2thumbs said:
Call the tax office. We have just been through this & it turned out so simple. Basicaly my wife rang them & explained what we were doing & how much rent we were charging, they just said thank you & altered her exisiting tax code. No forms, just a 5 min call.
Nice that HMRC encourages taxpayers to break the law.HMRC regulations state that anybody deriving rental income from a property is obliged to notify them and complete self assessment tax return forms to cover the rental profits OR losses and the subsequent capital disposal when the property is sold.
The main exceptions to this are when the rental income is received under the Rent a Room scheme or through some of the options available under various social caring schemes.
We pay roughly £25 per month tax on our rental income.
Op, ring the tax office, they are very helpful.
My wife phoned them asking what to do about her share of the BTP - they asked what the profit was, and as it was under £2000 changed her tax code...
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