Tax help to new landlord

[geordie100]

Sorry to all if i may seem a little green.

I recently:

Bought Property for £102'500

Spent Around £12'500 refurbishing (including 4 mortgage payments at £570 each)

I would say the property is now worth (Due to refurb) £125'000

Due to interest rate reductions the mortgage payments will be around £490 pcm in the forseeable future.

I have tenants in paying £550pcm (Making me £60 pcm)

Will i bay liable to pay tax at the tax year end??

I know this is a straight forward question to most but i simply don't know the exact answer...

I would appreciate any help at all....

[plym77]

Hi Geordie

It is quite usual to have a form of 'pre-trade expense' for a buy to let, but what you need to establish is whether they are in the course of letting the property (not the purchase/improement of the property - these would be capital expenses). Generally if this is your only property you would save up the expenses and put them against your rental income when you start to let it out. If you have a portfolio of BTL properties then the business is treated 'as a whole' and therefore the expenses can be claimed as they arise.

I would suggest that the mortgage interest (not any capital element) will be claimable, providing the property does not remain empty without actively seeking a tenant for a long time. Four months should be fine.

As far as the refurbishment costs - see another post I have just made on another thread in which I talk about the difference between repairs and maintenance, and capital improvement. It is important you distinguish between the two.

Whether you paid tax will depend on whether your allowable expenses outweigh your income for the tax year.

Hope this helps

Sherena

[geordie100]

Hi Geordie

It is quite usual to have a form of 'pre-trade expense' for a buy to let, but what you need to establish is whether they are in the course of letting the property (not the purchase/improement of the property - these would be capital expenses). Generally if this is your only property you would save up the expenses and put them against your rental income when you start to let it out. If you have a portfolio of BTL properties then the business is treated 'as a whole' and therefore the expenses can be claimed as they arise.

I would suggest that the mortgage interest (not any capital element) will be claimable, providing the property does not remain empty without actively seeking a tenant for a long time. Four months should be fine.

As far as the refurbishment costs - see another post I have just made on another thread in which I talk about the difference between repairs and maintenance, and capital improvement. It is important you distinguish between the two.

Whether you paid tax will depend on whether your allowable expenses outweigh your income for the tax year.

Hope this helps

Sherena

I think i get where your coming from:-

From the tax mans (or woman) point of view i have an income of 550pcm... i'e £6000 per year from the tenant. And i am due to pay tax on that entire amount unless i can claim expenses against it... Is that right...??

So..... the easy one of £490pcm mortgage, around £400 of that is probably interest (Adding up to £4800per year) so i therefore have to find £1200 more in expenses to owe no tax... Which in this case should be easy as the first few months it was empty and i must have paid an additional £1600pcm interest...

I know this is simplified, however am i correct in thinking that this is the general idea?

As for the refurbishment, the place was bearly liveable in. Everything i did was pretty much superficial and more of a repair and maintenance to bring it up to a standard that was liveable in. Yes the value of the property has increased from when i purchased it but not by any more than any other house in the street. I.e i didn't extend or convert to add capital.

Just another question, would i have an argument that i have suffered a huge loss this year i.e.

£6000 rent - £4800 interest - £12500 repair and maintenance costs = a loss of - £11300 for the year (simplified againi know)

Can this be offset against my PAYE tax code for my day job???

Look forward interstingly to your response...

[plym77]

Hi Geordie

I have to say that if the property was barely liveable then the costs you have spent is getting it up to standard are likely to be Capital. You probably paid a bit less for the property if it was in poor condition. It may be superficial (cosmetic rather than structural), but the point is that you probably paid less because of the state and did it up to a level that made it lettable. This will constitute capital improvement.

If I were you I would go through those expenses and separate the improvements and keep those details aside until you sell the property. They will be allowable at this point.

I can confirm however that if allowable expenses outweigh income in the tax year (which runs 6 April to 5 April next) then you will have an incurred a loss. This loss can either be offset in the current tax year against the profits of your BTL portfolio (if you have one) or carried forward and set against the following tax year. You cannot unfortunately offset the loss against other income (including your salary).

Hope this helps

Sherena