I have a couple of straightforward (I think) tax questions, any help is much appreciated.
For buy-to-let properties, do you have to pay tax on all the rent received from tenants or only on the portion that exceeds the monthly mortgage payment? E.g If my monthly mortgage payments are £800 and I receive £1000 p.c.m. in rent, do I pay tax only on the £200 "profit" or on the entire £1000?
I rented out my flat in the UK whilst on a work assignment abroad where my company paid for accommodation. It was only for a few months so I was still a UK resident for tax purposes. Do I have to pay tax on all income received or just on that portion that exceeded my monthly mortgage payments?
That depends on what (as opposed to how much) the mortgage payment is. Only mortgage interest, not any element of capital repayment, can be treated as an expense. In your example, your £800pm would be fully deductible from the rent received only if you have an interest-only mortgage. If you have a repayment mortgage, you will need to look carefully at the lender's statements to work out how much of the annual payment is interest and how much is capital.
Don't forget that mortgage interest isn't the only expense which can be deducted,. Every other expense wholly and exclusively related to the rental business qualifies too. Examples include insurance, repairs, maintenance, etc.
Same as above, although there may well be an exemption for that type of situation, in which case you would not have any tax to pay at all on any of the rental income.
I have a couple of straightforward (I think) tax questions, any help is much appreciated.
For buy-to-let properties, do you have to pay tax on all the rent received from tenants or only on the portion that exceeds the monthly mortgage payment? E.g If my monthly mortgage payments are £800 and I receive £1000 p.c.m. in rent, do I pay tax only on the £200 "profit" or on the entire £1000?
I rented out my flat in the UK whilst on a work assignment abroad where my company paid for accommodation. It was only for a few months so I was still a UK resident for tax purposes. Do I have to pay tax on all income received or just on that portion that exceeded my monthly mortgage payments?
regards, Paul
Paul, where were you born, and where was your father born.
Britain has the principle of Domicile. If you are from generations of Brits, you are Domiciled and as a default, your worldwide income is taxable in the uk. Was this an overseas assignment from a single employment or when working abroad, was this a seperate employment? If you are working for a UK company but simply get sent abroad being paid by the UK company, then the UK company is responsible for paying tax and NI in the usual way.
As usual, we need lots more information before you can get advice you can rely on.
I was born and am currently domiciled in the UK. Yes, it was an overseas assignment for my UK employer so tax on salary and NI contributions were paid as before.
Following on from what Ronald said above I think my question resolves to: Even when my accommodation abroad is paid for by my employer can I treat the interest part of my mortgage payments as an expense (in the same way as council tax, building maintenance fees, etc)?
Can your really deduct council tax as an expense? Surely CT is paid by the tenants. or perhaps you mean any council tax paid by the landlord during times when there was no tenant.
I was born and am currently domiciled in the UK. Yes, it was an overseas assignment for my UK employer so tax on salary and NI contributions were paid as before.
Following on from what Ronald said above I think my question resolves to: Even when my accommodation abroad is paid for by my employer can I treat the interest part of my mortgage payments as an expense (in the same way as council tax, building maintenance fees, etc)?
The paid up rent on your foreign apartment is irrelevant to the UK authorities (assuming that you were non resident for the qualifying period), but the foreign tax office way want to tax it as local income (because that is what it is!)
From what I have read, he had no foreign employment, he was employed by UK company and was simply working a tempory workplace. So the cost of the overseas assignment is just part of his UK employment.
Even if he was on an overseas employment, the Rental from his uk buy-to-let remains taxable in the uk, he is domiciled here.
If it is a House in Multiple Occupation, or you are just letting out part of the house; then the landlord will pay the Council Tax, and the relevant proportion of it is allowable.
No. Generally in such a situation each of N occupants will pay an Nth of the council tax (usually as part of an inclusive rent). If N is 3 and temporarily drops to 2, then the agreed inclusive rent for the other two isn't suddenly going to increase to a half share. Although the overall CT bill will stay the same, each of the remaining two tenants will continue to pay a third of it, with the landlord making up the other third for the duration out of his own pocket. The relevant proportion is that third and is allowable.
In practice it is probably easier to treat the whole CT bill as allowable, and instead to treat the contribution received from the tenants as extra taxable rent. This works out the same as doing it properly and accounting for received CT separately and offsetting it against CT paid out, so that only the difference is an allowable expense.
Normal occupants will, but a live-in landlord (and wife) cannot apply it this way for tax. He is only allowed to claim the *increased* costs against the income before assessing his tax liability. If he's already paying the maximum CT, moving an extra person into the house will not increase his costs, so he cannot claim it.
Yes he can. Example: CT bill for house was £1500 a year, all of which was paid by the landlord, on behalf of himself and his wife. Then they acquired a lodger who pays rent of £2000 a year, of which £500 is deemed to be the lodger's 1/3 share of the CT. Ignoring (for simplicity) all other expenses, the landlord therefore pays income tax on £1500pa of rental income.
Basically, upon commencement of the letting business, a third of the house's CT has become an expense of the business. This remains the case for as long as the business continues, even during temporary vacancies.
When a lodger leaves, then in the vacancy period before a new lodger arrives, the landlord must pay the original full rate (which is 150% of his new normal rate), so there we have your "increased costs".
Well, it's obvious that we don't agree, but which one of us is wrong?
I reckon you are, because the premise in your reason is false. Where does it say he can only claim increased costs?
It is a basic principle of the taxation of business income (and rent falls into that category even though it's not quite the same as self-employment) that any expense wholly and exclusively incurred for the business is allowable. The lodger's share of the council tax ticks that box, because the lodger is responsible (under the tenancy agreement) for paying 1/3 of the CT, while the resident landlord and his wife are responsible for the other 2/3.
The fact that the landlord is responsible *to the council* for paying the whole CT is irrelevant, and so is the fact that 3 people pay no more than 2.
It's a basic principle of personal taxation (which is what this is), that you can only pass onto your business the increased personal costs of running that business at a location that you live in.
This fails you own definition. The CT is not wholly and exclusively incurred by the business. It is incurred jointly with the householder. It therefore has to be apportioned and the apportionment that will be assigend to the company in this case, IMHO, is 0%.
I agree that the responsibility to pay falls on the householder is irrelevent but not the fact that it is assesd on him.
Agreed so far, as the business is a personal one, very similar to self employment, the taxation of the business does indeed boil down to personal taxation.
I don't believe there exists such a basic principle as you claim. Can you point to corroborating evidence?
Not all of it, no, but part of it is, as you admit.
On what hard and fast rules do you base this opinion? In my view it is absurd. Clearly a portion of the CT is paid by the lodger. It simply passes through the landlord's hands. It is not the landlord's own personal expenditure, the landlord forwards the money to the council *on behalf of the tenant*.
He is merely the "responsible person", i.e. the person who has to make sure the council gets paid. That's not the same thing as saying that he is liable (other than in the first instance).
It would be more helpful if you could say *why* you disagree, by which I mean I want you to show me rules which confirm it.
I think your whole "increased costs" doctrine is bunkum. For example, suppose you run a self-employed business from home, which involved much use of the by phone. You use your only phone line for this, which therefore has shared private/business use. You apportion the cost of calls made and charge the business ones as expenses. By your doctrine you could not charge a portion of the line rental as expenses, because it has not gone up as a result of business use. But you can.
Or do you mean the doctrine doesn't apply generally bu only in the specific case of a resident landlord? That's utterly absurd. Why should a landlord be penalised simply because he happens to live on the premises?
Not without a long search no, but I'm certain that it exists.
But that's the point. The CT bill is one thing, it is either is wholly incurred or it isn't (and it isn't).
No it's not. The 100% charge is paid by the two people who were already in residence. Adding a third person does not generate a charge that was not there before.
If the landlord is in residence (with his wife) it IS his personal expenditure.
Funny you should mention this
It has long be recognised (for the 25 years that I have been running a company, through 3 accountants and (only!) three VAT inspections) that is exactly how it is, I.e you can't apportion the rental (for IT or for VAT).
Not legally you can't!
It applies generally to people running part of their home for business use.
"She also uses the telephone to connect to the internet for research purposes. Her itemised telephone bill shows that a third of the calls made are business calls. She can claim the cost of those calls plus a third of the standing charge."
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