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I Want to Rent a Property.......Questions

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FieryP125 | 01:16 Sun 09th Mar 2008 | Business & Finance
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I bought a property with a girldfirend several years ago, we have no split up and I am back with my mum and dad. Rather than sell this property I wish to rent it out and have some questions I hope you can help me with:

I know about going through ARLA registered agents for protection, etc - my main queries are the tax implcations.

My mortgage is approx �400pm and I was hoping to obtain �600pm rent. A profit of �200pm. I am assuming I wont be taxed on the profit I make, but rather the �600pm ( �7200pa ) rental income I receive.

How do I go about my taxation status? If I start renting the property out now, do I just submit a self assessment form in Jan 2009? Do I have to let anybody know?


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No, Fiery, it is the profit you'll be taxed on. From the gross rent you can deduct the mortgage interest and any other legitimate expenses - agent's fees, for instance. If the property's furnished the allowed expenses can get a bit complicated - have a look on the HMRC website for the lind of things that are allowed.. You will need to get a tax return - you can ask your tax office to send you one or you can do it online - but you don't need to notify HMRC within 3 months like you do when you start self-employment. Your mortgage lender will probably want to know, as will your insurance company.
Question Author
Will my tax that I pay via my employed job be affected?

I have a mortgage on repayment terms - can I still deduct the mortgage interest?
1 No, not unless you choose to have the tax on the rental income collected through your tax code - which isn't a bad idea, actually.
2 Only the interest, not the capital repayment. Your mortgage statement will give both figures.
Question Author
Having the tax come out through my tax code sounds the best way - better than tax returns, etc. How will they know what my profit is though?

Would they just take it out monthly or in one lump sum in April?
Question Author
I've looked on the diret.gv website and it doesnt seem to give this option - only says you have to complete online tax assessments
When you've done your tax return and either you or HMRC have calculated the tax due, you can eitehr pay it in 2 lump sums or have your code adjusted. Either way, you pay the tax in the year after you received the rent. Suppose your net income from the property was �520 in the year ending 5 April 2008. You'd either pay �260 on 31 January 2009 and another �260 on 31 July 2009 (plus another �260 as teh estimated first instalment for the following year) OR agree to lose an extra �10 a week from your pay packet. You're not always offered this option, though; your tax office should be able to tell you more.
Yes, Fiery, you would generally do a self-assessment tax return for this type of income. This is far better than the pay-as-you-go PAYE system because you won't know until after the end of the tax year in April how much profit you have made (so its a bit hard for the tax by be taken out by using your coding). You then do a tax return sometime between April and September-ish. You have to pay the tax by the end of January in the following year. That gives you a whole 10 months for the due tax on any profits made to sit earning interest for you.
(Above comment constructed before TB posted his)
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Think I understand now.

So to clear it up I will go down the tax self assessment route and you pay the tax twice a year

Also if I'm charging �600pm ( �7200 pa ) from this figure I can deduct expenses like repairs & property insurance, but also my mortgage interest. So I would then have a profit of approx �5000 say and I would only be taxed on this - 22% I think.

So If I was going to start this in May 2008, I take it I have to inform the revenue I'm doing this or do I just submit a tax return in Jan? So if I start in May 2008 I pay no tax until Jan 2009 and again in July 2009

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