Tax query

[Mr Ozone]

Hi folks

I'm sure there are many a knowledeable person or 2 on here with regards to tax so please comment if you can, thanks

I've had a house which i've rented out for the last 2 years, rental income is 595pm, minus 10% managment fee (+VAT). My mortgage payment is 460pm. After Buildings insurance I am left with about 40pm after i've paid my mortage. I had to redecorate the house before I rented it out and have had to fix a few things since the tenants have been there, drainpipe, leaking toilet, upvc door.

I've also just bought another place and rented it out, although the rental income on this new place falls short by 230pm. I knew this was going to happen but plan to move into it in a year or two so it's ok. I had to spend quite a bit of money on this place to get it up so standard - probably about 1k in total - plus about 3 weeks of my hard labouring!!!

I think i need to pay some tax on my first house, so a) how do i know how much i'll owe and does any of the repairs i've had done reduce my tax bill?

For the second house, as you can see, i'm well in the red money wise - so does this mean i don't have to pay any tax? (hope so) But do i have to go through the hassle of filling out tax forms for it anyway? As you can prob guess from the fact that i've not paid any on the first house yet, i'm not that organised and filling out tax froms has never been at the top of my list of priorities - yes more fool me i know!

Oh and one last question - sorry this is an important one....i've read something about interest on your mortage being tax deductable or something, a) i don't really know what this means and do i calculate the profit i make from it before or after i've paid my mortage payment?

thanks in advance

[Melboy]

The first thing you need to be aware of is that HMRC are currently carrying out an intensive campaign agaimst Landlord's who are not registered for taxation purposes and hitting them hard for non tax declaration of unearned income from rental property.

The HMRC are not subtle in their handling of this and they hit the non declaring landlord with a large tax bill and then work backwards.......well, the landlord has to work backwards in order to not to pay too much tax. There is a sort of amnesty going on whereby the landlord declares tax liability and they take it from there but if they discover you as a non payer they will hit you hard and they take no excuses.

But to answer some of your queries.............

Tax relief is only available on the interest paid on your mortgage and not the whole mortgage amount paid.

All properties are combined for tax purposes.

Yes, repairs are tax allowable......keep the receipts though for 5 years.

Your 3 weeks of hard labouring is NOT tax deductable item because it is not a paid job and if it was you would pay tax on your income.

I recommend that you get yourself off to a good bookshop and buy a book on "Landlord's and Tax Liabilty" there are dozens on the subject of being a Landlord or if you hate filling in forms employ an accountant to do it for you but whatever you do phone the HMRC and register and they will send you all the forms and a good guidance booklet you will need to fill in your tax return.

Mel.

[Mr Ozone]

Melboy - thanks for your reply, firstly thanks for the first bit about the kind of amnesty and the intensive campaign the gov are doing at the moment. Probably best i contact them before they contact me.

Secondly - i think you're spot on - get myself off to a bookshop - or amazon, and get myself a book or two on the subject. I'll do this today actually, no point leaving it any longer.

Thanks again for taking the time to reply

Smith00 - not really sure what you're talking about!

[Chestnut]

Mel,

Splendidly succinct answer! The kind of response that makes this site so useful.

One small point - I think tax deductible repairs should be limited to those after tenancy is up and running - not to be confused with set-up improvements i.e. getting the property fit before starting to rent.

ps. For moderator - Smith00 looks to be twin brother of Jack00 !!

[lambert]

chestnut --- interesting -- when can pre rental things such as a change of flooring and decoration be claimed for please? thanks for any advice you can give.

[Chestnut]

Ricky,

I think 'Never', because those costs are as you say 'pre-rental'. But I'm not a tax expert - try web links below.

The HMRC guidance notes indicate that you can only claim for wear and tear repairs once your tenancy is operating, implying that you cannot claim for repairs before you start (your pre-rental jobs), which I think are classed by HMRC as improvements.

I think the HMRC logic is that they can't give you any allowances until you've had some rental earnings liable for tax, as up to then they've taken nothing from you.

Paste and Read these links:-

Land and Property Help Notes: www.hmrc.gov.uk/worksheets/sa105notes.pdf,

Notes on Expenses and Allowances: www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027

[lambert]

thanks a million - those sites are very useful, easy to read and understand and unusually not too complicated,