paying tax on rental property with very low profit...

[teachertrainer80]

Quick query....Dsis started renting her flat out in 2011 as she was made redundant and had to move to an area with better job prospects in her field. Flat has gone down in value (as seemingly have all properties anywhere but London) and the £300 rent she receives per month seems to largely go on repairs and maintenance (damp problems, boiler problems, broken washing machines etc which she never had herself when living there for 5 years...). The flat was also empty for 4 months while the agency found tenants. Rubbish agency but Dsis is now busy with FT job other side of country so can't deal with it herself.

She has to rent it out as property is in negative equity but the 2011/12 profit was only about £900 after repairs, insurance, agency fees, mortgage interest etc. According to the HMRC website, you do self assessment if you make over £2500 as a landlord but makes no mention of lesser amounts. Does anyone know what the process is for profits of less than this? Seems unfair to pay tax when house has gone down in value and Dsis is renting in expensive SE and paying PAYE through work but I assume she has to. HMRC site unhelpful!

Anyone know what she should do? TIA

[nocake]

There are certain things you can offset against the tax on rental income. The big one is mortgage interest, although not the capital so she'll need statements from her mortgage provider showing how much interest she is paying. You can also offset maintenance, repairs, improvements and agency fees.

The £2500 limit is on income, not profit, so she will need to complete a tax return each year. She can do it online and it isn't difficult as long as she keeps records of income and expenditure.

[teachertrainer80]

thanks for your help!

[INeedThatForkOff]

We wrote to HMRC with a breakdown if income vs costs, and the profit was so minuscule that they just adjusted our tax codes.

[ForeverProcrastinating]

Any net profit, key word - net - after all allowable expenses (inc agency fees) is regarded by HMRC as unearned income and taxed accordingly. As said earlier, the online form is easy to complete and gives you the net tax figure at the end.

If necessary, she can speak to an accountant to ensure all is covered but HMRC make it easy to give them money

[lightrain]

You can also deduct some money for wear and tear each year, that will come off the profit. I think it's a percentage of the rental income. I no longer do self assessment because my flat makes negative income (and is in negative equity - what a great investment that was). HMRC weren't interested in hearing about this after 3 years of seeing it made minus amounts of money. I'd guess it would be the same if less than £2500, or they may allow PAYE tax code to be adjusted to account for profit, to save filling in SA form. Worth calling them about.

[nocake]

You can only deduct wear and tear on a furnished property and if you do this you can't deduct the cost of replacing any furnishings or appliances.

[LIZS]

Didn't think "improvements " were allowable.

[specialsubject]

improvements are not allowable, but agents fees, insurance, repairs and other things are. She does a tax return, declares it all, turns out to make no profit and so pays no tax on it.

She'd better shift with this as the deadline is coming.

she should also find a new agency, it can all be done remotely.

[chicaguapa]

And if she has to return to the flat regularly to carry out inspections and arrange repairs, she can deduct mileage at 45p per mile from the profit too.

[nocake]

I didn't know about the mileage. I'll mention that to DW when she's doing the next tax return. Thank you.

[Sunnyshores]

It may be worth still reporting a loss, as you can carry losses forward year after year and when the time comes that you make a profit, then you can offset it against the previous years losses.

[tribpot]

Yep, I'd report the loss. The tax return isn't difficult to do (err, explaining why I still haven't finished DH's with the deadline looming :) )