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Old 05.04.2007, 00:18
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Can anyone help with a UK tax question?

Can you help me folks.

I have a flat in Glasgow and am renting it to a friend just to cover the value of my mortgage payments. I am making no profit on it at all, a loss actually. My calender monthly income is £400, so £4800 per year. I have received this since August '05. I know that I would be entitled to a large tax rebate for the tax year 05/06 but I'm scared to ask for it as I dont know if they will take it out the other pocket in taxes I should have paid on my rent income.

Can anyone give me an answer as to whether I should be paying basic rate tax (22%) or would I be entitled to some tax free pay. Is it also possible that since the amount is so little, they wont claim it from me?

Thanks for any help you can offer
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Old 05.04.2007, 01:04
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Re: Can anyone help with a UK tax question?

you can earn around 5000 tax free (of which you can offset your mortgage) , you only start paying tax if its over this. So if this is your only earning in the UK then no you don't have to pay tax. If you are due a tax rebate then it sounds like you have other earnings in the UK so anything that takes your earnings over 5000 they will make u pay tax on
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Old 05.04.2007, 09:13
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Re: Can anyone help with a UK tax question?

Hi, I was in a similar position last year when I moved over. I declared both the incoming rent and total salary for the year. The rent would be less than 5000 for 0708 and only added a little to 0607, so overall i still got a decent tax rebate. For the amount you are talking about, I think it is worth declaring and being above board, or you could not mention the house and see what happens. If you are working through a letting agency, they are required to check that you are registered as an absentee (overseas) landlord...
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Old 05.04.2007, 09:22
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Re: Can anyone help with a UK tax question?

Remember you can claim expenses before calculating your net income from property. Some of the main deductions include:

Interest part of mortgage payments
Property maintenance and repairs (e.g. 10% wear and tear allowance)
Insurance costs
Letting agent fees
Administrative costs
Landlord gas safety record
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Old 05.04.2007, 09:23
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Re: Can anyone help with a UK tax question?

Thanks for your advice guys, I have no other earnings in the UK, I left to come to Switzerland during 05/06 so was working right up until August. Also, I am not renting through a letting agency, just a private thing to my friend. To be able to claim my tax rebate, I need to complete a 'leaving the Uk' form which asks whether I have a property and if I have any income from it. When I dont complete this form and basically play dumb then I dont have to mention the fact I have this income, however, if I complete the form I cannot ommit that section, dont want to be accused of being a tax dodger, being stupid is much better.
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Old 05.04.2007, 10:34
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Re: Can anyone help with a UK tax question?

Sadly the inland revenue (or whatever it is called now) don't accept being stupid as a valid reason. I used to work in an accountancy firm in London with its own tax department, so the stories I used to hear..

I knew of someone in the same situation as you, who rented his flat out to a friend while he went travelling for 2 years. He never paid tax or let the inland revenue know, and when he came back he received letters from them claiming the tax back (believe it or not, they can find out, and you would not think something so small as a few hundred quid missed tax would get them in such a sizzle, but it does). He had to use an accountant to help him out, which obviously increased the costs for him.
Also, I remember when I lived in London, the owner of the house I used to live in, lived in the States, and we received a letter from the inland revenue asking us how much rent we paid, but never filled it in. So they are obviously interested in the missed rent tax.

Anyway, in your case I would definitely fill it in, since you won't have to pay any tax on it (you may have to fill in a yearly tax return or they might waive that requirement if they can establish you don't have any other earnings - but don't forget interest income if in a UK bank account).
I think a quick calcuation is as follows (but double check, I have not done a tax return for a few years)
rent - 4,800 (from 1 April)
M&R - less 480 (10% if you have left furniture in your place, even if it is just a table)
less any other expenditure you can think of - mortgage interest, any bills you pay on his behalf, any insurance costs etc etc, don't be shy!
This will be your net rent. I may be wrong, but I don't think you can claim any tax back if the net rent is negative, i.e. you can't set it off against your interest income for example.
Anyway, hope this helps!!
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Old 05.04.2007, 14:12
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Re: Can anyone help with a UK tax question?

Apparently there is a tax crackdown on landlord income:

http://business.timesonline.co.uk/to...cle1400147.ece
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Old 05.04.2007, 14:32
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Re: Can anyone help with a UK tax question?

I was looking at renting my house out, there is a tax loophole here that can be exploited;

1) Rent it out for LESS than your monthly mortgage amount (by not much, say £10 a month)
2) Because you are making a loss overall, you do not get taxed as there is no profit to be taxed on
3) End of the year, remortgage the property to release equity - there's a level beneath which the govt do not tax you for released equity from the property, from memory I think this wass £10k when I looked into it
4) Contact your tenants and advise them that due to interest rate changes etc there's an increase to the monthly rent of "x", where "x" is enough to make sure that a) it's still less than the mortgage, and b) it's enough to cover the increased cost per month from the remortgaging.

This way, you cost yourself £120 a year in being "under" your mortgage amount, but get back £10k a year tax free. The only thing to be sure of is that you have the house full all the time, but thats the same with renting it anyway.

You do still have to declare all of the above to Inland Revenue, but because you're effectively trading at a loss and just remortgaging, it's all totally legal and above board, and they can't touch you for it. My friends uncle gave me this advice, he's been doing it about 30 years no problem.
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Old 05.04.2007, 15:11
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Re: Can anyone help with a UK tax question?

Quote:
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I was looking at renting my house out, there is a tax loophole here that can be exploited;

1) Rent it out for LESS than your monthly mortgage amount (by not much, say £10 a month)
2) Because you are making a loss overall, you do not get taxed as there is no profit to be taxed on
3) End of the year, remortgage the property to release equity - there's a level beneath which the govt do not tax you for released equity from the property, from memory I think this wass £10k when I looked into it
4) Contact your tenants and advise them that due to interest rate changes etc there's an increase to the monthly rent of "x", where "x" is enough to make sure that a) it's still less than the mortgage, and b) it's enough to cover the increased cost per month from the remortgaging.

This way, you cost yourself £120 a year in being "under" your mortgage amount, but get back £10k a year tax free. The only thing to be sure of is that you have the house full all the time, but thats the same with renting it anyway.

You do still have to declare all of the above to Inland Revenue, but because you're effectively trading at a loss and just remortgaging, it's all totally legal and above board, and they can't touch you for it. My friends uncle gave me this advice, he's been doing it about 30 years no problem.
If you keep jacking the rent up year on year it's a sure way to lose tennants so bear that in mind.

AFAIK in *Switzerland* you get taxed on the rental income of the house (regardless of whether or not you're actually renting it out). You can get a rebate on _interest_ payments that you have to make to service the mortgage debt but not on that portion of the payment which goes to reduce the capital amount borrowed.

So if you are resident in Switzerland/due to pay Swiss tax, this strategy isn't going to benefit you as much as you think. Unless of course you have an interest-only mortgage. Bear in mind that you have to declare the UK property to the Swiss tax authorities if you are being taxed in CH. I don't know if they have a reliable way to otherwise find out you have a property however, if you don't declare it. I wouldn't want to risk it though.


As for remortgaging the house to cash in on the increased value, not too sure how the Swiss tax people look at that. In the UK I think you should be able to borrow ANY amount of money against your house without being taxed on it. It's not income, it's a loan (which has to be repaid in full with interest some day) and hence therefore not taxable.
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Old 05.04.2007, 15:20
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Re: Can anyone help with a UK tax question?

^ You only put the rent up by about £10-£15 per year, depending on the remortgage.

The Govt *do* tax you on cash you take out of the house as equity, which does stink because yes, it is a loan - I bought at the right time, so my house pretty much doubled in 2 years - my intent was to remortagage and draw about £35,000 out of the equity, however I was told by a financial advisor this would hit me for about 40% tax (!) so I never bothered with it in the end.
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Old 05.04.2007, 16:48
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Re: Can anyone help with a UK tax question?

quote: The Govt *do* tax you on cash you take out of the house as equity, which does stink because yes, it is a loan - I bought at the right time, so my house pretty much doubled in 2 years - my intent was to remortagage and draw about £35,000 out of the equity, however I was told by a financial advisor this would hit me for about 40% tax (!) so I never bothered with it in the end.
I am not sure how to do the little quote thingy.

I think you need a new financial advisor... Getting out a new loan on your property, without selling the property, does not constitute a capital gain event, and thus is not liable for the 40% tax. Unless you sell the house, but even so, you are not liable for CG tax on your PPR, personal private residence, not matter how much of a profit you make (slightly different thing if it is an investment property), but you actually have to sell it not just remortgage it. Taking out a remortgage is the same as taking out a mortgage, why would the government tax you?
I know loads of friends that took out remortgages, and none have had to pay any tax!
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Old 05.04.2007, 22:51
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Re: Can anyone help with a UK tax question?

Goddamit

I find this out 3 days after the house sale completed...
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