tax query

[dojodirectory.co.uk]

hypothetical question to shed some light on a discussion i was having with a
mate today.

if you buy a house - to let - and rent it out at say £500 per month. and
the mortgage payments are £500 a month i.e. no profit.

apart from any gain made on the sale, would any other taxes be due.. i mean
from the monthly income?

how would it work?
thanks

 

[Jonathan Bryce]

hypothetical question to shed some light on a discussion i was having with
a mate today.

if you buy a house - to let - and rent it out at say £500 per month. and
the mortgage payments are £500 a month i.e. no profit.

Only the interest element of the mortgage payment is allowable, so there may
well be a profit here.

 

[Rob graham]

Only the interest part of the mortgage payment can be offset against tax,
not the capital element.

Rob Graham

 

[dojodirectory.co.uk]

Only the interest part of the mortgage payment can be offset against tax,

not the capital element.

Rob Graham

ok thanks, so my mate was right? if it was an interest only mortgage, and
there was no difference between the monthly interest amount and the monthly
rental amount there would be no tax to pay until the property was sold on at
a profit.

 

[Ronald Raygun]

ok thanks, so my mate was right? if it was an interest only mortgage, and
there was no difference between the monthly interest amount and the
monthly rental amount there would be no tax to pay until the property was
sold on at a profit.

More or less. But if the mortgage interest were equal to the rent,
you'd pretty well guarantee to make a loss, as there are other expenses,
such as insurance, maintenance, repairs, gas safety testing, not to
mention loss of income when you find yourself "between tenants" for month
after month after month. That's why BTL mortgage lenders usually insist
that the rent exceed the mortgage payments by at least 30%.

All the expenses are of course tax deductible too, but you do incur them
in the first place, which matters more.

 

[JF]

X-No-Archive: yes

hypothetical question to shed some light on a discussion i was having with a
mate today.

if you buy a house - to let - and rent it out at say £500 per month. and
the mortgage payments are £500 a month i.e. no profit.

apart from any gain made on the sale, would any other taxes be due.. i mean
from the monthly income?

Your commitments and your income are entirely separate. The rent you
receive on your rent must be declared and added to your income. You are
allowed to claim for service charges, ground rent, repairs and
maintenance, so careful record-keeping is required.

 

[Doug Ramage]

ok thanks, so my mate was right? if it was an interest only mortgage, and
there was no difference between the monthly interest amount and the
monthly rental amount there would be no tax to pay until the property was
sold on at a profit.

In principle, Yes.

But problems could arise when letting to relatives etc at undervalue, or
part of a tax avoidance scheme.

The IR do a booklet on the taxation of rents - IR150 - which downloadable
from their website.