Taxation on rental property

Taxation on rental property

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I am not conversant with taxation payable on rented property.  Can you advise whether tax is payable on someone's main residence which they have had to rent out to be able to pay the mortgage and retain the property?  The person has let her small flat and moved back in with her elderly parents.  She is in full time employment.  I expect this is classed as a business and she should make a Return to the Revenue as such, but will she be liable for tax?  Any advice gratefully received.

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By johngroganjga
25th Mar 2015 12:20

Owners of rented property pay tax on their rents less their expenses, which may include mortgage interest.

As you provide no figures how do you expect anyone to tell you whether there is in fact any tax to pay?

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Replying to pauljohnston:
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By solange
25th Mar 2015 13:44

Thank you for your response. 

Thank you for your response.  I was asking in general terms regarding tax payable on rented property rather than whether she specifically has a liability - the property has only just been let and she is concerned about the level of taxation levied against the rental income in the future  - she had been advised (I know not by whom) that renting her only residence to enable her to pay the mortgage, etc., as opposed to 'buy to let', meant that her tax liability would be less.  I felt that this could not be correct but said I would ask for advice on this forum.  Thanks again.

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Replying to Paul Layte FCA:
By johngroganjga
26th Mar 2015 08:34

Not right

solange wrote:

  - she had been advised (I know not by whom) that renting her only residence to enable her to pay the mortgage, etc., as opposed to 'buy to let', meant that her tax liability would be less. 

Not difficult really - tax on rents is the same whether or not she ever previously lived in the property.

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Replying to unearned luck:
By Paul D Utherone
26th Mar 2015 10:20

I suspect John

johngroganjga wrote:

solange wrote:

  - she had been advised (I know not by whom) that renting her only residence to enable her to pay the mortgage, etc., as opposed to 'buy to let', meant that her tax liability would be less. 

Not difficult really - tax on rents is the same whether or not she ever previously lived in the property.

that the saving anticipated by the unknown adviser was of interest payable on the mortgage rather than tax, but then who knows what the bar room adviser thinks or where they get it from most of the time
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By Manwithnoname
25th Mar 2015 12:47

Yes

She will be subject to tax on her profits as John suggests, but whether any tax is actually payable will depend on whether she makes a profit.  As she is FT employed she will pay tax on any profits, and can carry losses forward against later years' profits.

The rate of tax she will pay will depend on the level of her employment income.

Technically there could be tax issues when she comes to sell the property, but as she has let it while she wasn't living there it is unlikely to lead to tax being due.

 

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By Paul D Utherone
25th Mar 2015 13:13

... and of course

as she has moved out it is no longer her 'main residence' though that has no real effect for income tax purposes, other possibly than the fact that 'Rent-A-Room' will not be relevant.

Presumably she has approval from the lender to let the property?

Otherwise, the property 'business' will be taxable as above, remembering that it is only the interest element of any mortgage payment that will be allowable against rents and not the total payment including capital repayment

It could mean that on a disposal more than 18 months after moving out there could be capital gains tax to pay, though there are other reliefs that will extend mean that it will be after somewhat more than 18 months that CGT may become relevant.

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By Paul D Utherone
25th Mar 2015 14:09

It's likely to be the other way around

If she tells the lender - which she should do anyway as letting the property is almost bound to be not allowed under the terms of a normal residential for own use loan and to require the borrower to obtain permission from the lender - then the interest rate payable is likely to increase in line with BtL rates

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