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
Only the interest element of the mortgage payment is allowable, so there may well be a profit here.
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.
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.
X-No-Archive: yes In message , dojodirectory.co.uk writes
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.
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.
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