Renting a property / Financial Advice

[salvadorescobar]

I don't know if this is in the right forum. Apologies if this should be in the legal section. Please move the thread if appropriate.

It is that time of the year where I need to fill in my tax credit form and things have changed a little this year.

For the first time I am renting a property out.

I haven't done this before and so far I have not declared the rental income as a taxable income. Its just something I havn't got around to yet (been meaning to). So - on the tax credit form they want to know about my other earnings. This includes rental income minus costs.

So - I won't have to do a self assessment until the start of next year but I have to consider this now.

I have a mortgage on the house and the rent pays for the mortgage. Is the mortgage tax deductable? I earn more from the house than the mortgage costs and I am making the assumption that I'll have to pay 40% on this (upper bracket here) so I have been stashing the excess to one side since starting letting (6 months ago).

Does anyone else rent a house out? Can anyone advise me on what I should be declaring? Can I deduct the interest charges against the tax? If I can how do I do this?

I shouldn't have left this so long and to be honest I only got £15 last year from the tax credits and I can live with losing that this year if it is going to be a pain to fill it in.

Can anyone help me???

Thanks in advance, sal.

[wacky1]

Salvadorescobar,

Any rental income you earn is subject to income tax at your highest or marginal rate of income tax, but the Inland Revenue makes generous allowances. For a start, the interest on your buy-to-let mortgage will be eligible for tax relief. You may also deduct the cost of a variety of expenses such as agent's fees and property repairs and refurbishment against the rent you receive. In addition, where the property is let furnished, you are allowed a deduction for wear and tear on furnishings and household equipment broadly calculated at 10% of the rent.

Your tax liability will be based on your net income from the property after you have deducted the following costs:

-interest payments on your buy-to-let mortgage ( but not capital repayments)
-mortgage arrangement costs
-maintenance costs (such as painting and decorating)
-10% a year depreciation of furniture value
-cleaning
-ground rent, service charges and buildings insurance, where applicable
-advertising the property
-letting agent's fees
-accountant's fees
-insurance policies on white goods, gas boilers, plumbing cover

Hope that clarifies things...

[salvadorescobar]

Thanks for the advice mate. That makes things a little easier to swallow.

[salvadorescobar]

I have a further question on this:

If I was to pay say, £250 for repairs would I deduct this from the income as a whole or would I be deducting the VAT on the £250 that I have paid from the rental income?

What I am trying to get at is would it be sensible to get someone else to do repair on the house rather than myself? If I can claim all the cost of repairs from my tax bill then effectively getting someone else to do the work would mean a 'freebie' to me.

Thanks in advance, sal.

[Crags]

Repairs I dont think are VAT deductable, as apposed to TAX deductable. I would presume you would get some kind of rebate / allowance for repairs as it's part of the on goning cost to renting the property, but you'd have to double check with a financial adviser, or someone here who knows more

[phlix]

Your best bet is setting up a company and renting your property out from that. You would stand to save a fair amount of tax.

Here's a couple of links to books that would help you:
http://www.amazon.co.uk/gp/product/1904608434

and:
http://www.amazon.co.uk/gp/product/1904608264

I'd probably say the second one is more suitable.

[salvadorescobar]

Thanks for the help here!

[wacky1]

I have a further question on this:

If I was to pay say, £250 for repairs would I deduct this from the income as a whole or would I be deducting the VAT on the £250 that I have paid from the rental income?

What I am trying to get at is would it be sensible to get someone else to do repair on the house rather than myself? If I can claim all the cost of repairs from my tax bill then effectively getting someone else to do the work would mean a 'freebie' to me.

Thanks in advance, sal.

sal,

I assume then that you are VAT registered then? VAT is a separate issue from the normal expenses and you would then deduct the net amount from your tax computation.

Assuming that you are not, you can claim the full amount.

Cheers,


Wacky1

[salvadorescobar]

I aren't VAT registered so then I'll deduct the full amount!

Cheers.