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AteMoose

Btl Tax

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Was talking to a work collegue as he was giving him a lift home, and he told me he had a flat in birmingham which he was renting out, the rent was paying his morgage, i asked if it was a repayment morgage and he said yes, its just a normal morgage, he bought a flat, but its too far from work so he decided to continue living at home... I asked how much money he had left after the rent, and he said about 50 quid....

Then i asked what he did about tax?

He says : Tax? what do you mean?

I say : well its an extra income so you should pay tax on it. How are you Getting the money?

He then asked : Direct Debit, he asked what the tax would be? and if it would be better to get a cheque or cash instead to avoid tax?

Does anyone know how tax on BTL works? I assume total rent is classed as income and should be added to your normal income, and taxed as such? TTRTR? Also do you think the IR will track him down through the regular Direct Debit payments, and the fact the owner of the property isnt on the electoral role for that property? How many amature BTlers pay the correct tax, and is this a big problem?

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Your friend would be liable for tax on the profits i.e. after interest payments and other expenses at his normal rate of tax. After three years he would also be liable to capital gains on the profit of the property sale.

The fact that it is on a residential mortgage is not such a problem as he would be most likely to get rental permission from his lender for a small upfront fee

Edited by Clueless

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Was talking to a work collegue as he was giving him a lift home, and he told me he had a flat in birmingham which he was renting out, the rent was paying his morgage, i asked if it was a repayment morgage and he said yes, its just a normal morgage, he bought a flat, but its too far from work so he decided to continue living at home... I asked how much money he had left after the rent, and he said about 50 quid....

Then i asked what he did about tax?

He says : Tax? what do you mean?

I say : well its an extra income so you should pay tax on it. How are you Getting the money?

He then asked : Direct Debit, he asked what the tax would be? and if it would be better to get a cheque or cash instead to avoid tax?

Does anyone know how tax on BTL works? I assume total rent is classed as income and should be added to your normal income, and taxed as such? TTRTR? Also do you think the IR will track him down through the regular Direct Debit payments, and the fact the owner of the property isnt on the electoral role for that property? How many amature BTlers pay the correct tax, and is this a big problem?

He wouldn't have much if any tax liability if his rent is only £50 more than his mortgage repayments (which will be nearly all interest in the early years). I'm sure he has more than £50 of other expenses he can use to ofset his "profit"

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Was talking to a work collegue as he was giving him a lift home, and he told me he had a flat in birmingham which he was renting out, the rent was paying his morgage, i asked if it was a repayment morgage and he said yes, its just a normal morgage, he bought a flat, but its too far from work so he decided to continue living at home... I asked how much money he had left after the rent, and he said about 50 quid....

Then i asked what he did about tax?

He says : Tax? what do you mean?

I say : well its an extra income so you should pay tax on it. How are you Getting the money?

He then asked : Direct Debit, he asked what the tax would be? and if it would be better to get a cheque or cash instead to avoid tax?

Does anyone know how tax on BTL works? I assume total rent is classed as income and should be added to your normal income, and taxed as such? TTRTR? Also do you think the IR will track him down through the regular Direct Debit payments, and the fact the owner of the property isnt on the electoral role for that property? How many amature BTlers pay the correct tax, and is this a big problem?

As Clueless says, he should pay tax on the net income after expenses and interest. So because he has a repayment mortgage rather than an IO mortgage, I imagine his income from the property is higher than the £50 he thinks it is. Probably more like £150 a month.

No he won't get discovered by the standing order rent payment. He probably will never get discovered & no I don't think this is a big problem.

The tax on this would only be about £300 and do we really want to live in a society where the IR chases people for those amounts of money?

When he may be discovered is when he sells and suddenly has a large wad of cash in the bank earning interest that he declares on his tax return. How can someone go from declaring £50 a year to £5,000 a year in interest?

So it may be discovered then and he may have to pay back taxes and fines for years and years amounting to thousands and thousands of pounds. In that case, yes we do want to live in a society where those amounts are worth the IR chasing.

On capital gains. I believe if he declares the place as his main residence (even though it's rented, he can still do that) he can earn CG tax free. But he would have to straighten his ways out, declare the income now and declare the property his main residence in writing ( I believe the IR have a form for that purpose).

From the IR's point of view BTW, they don't care whether it's a residential mortgage or a BTL mortgage as that has no bearing on things for them.

However, if I were your friend, I would see if I could increase my return from the investment by remortgaging to a cheaper BTL rate, maybe even pulling out the money he put into the property, which would also reduce his net taxable receipt. But that would deserve another post to explain better.

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The tax on this would only be about £300 and do we really want to live in a society where the IR chases people for those amounts of money?

.

They can and do.

Why shouldn't he have to pay tax if he owes it?

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Guest Charlie The Tramp

The best advice he can get is to ring those nice chaps at the Inland Revenue, I always find them very helpfull. <_<

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They can and do.

Why shouldn't he have to pay tax if he owes it?

Yes he should pay it, but how much should the IR spend to recover it? That's our money they're spending & do we want our money spent on chasing people for every penny?

I'm sure you have a few items of income that you haven't declared? When are you going to pay the tax on those? Didn't I see you at a Car Boot sale recently?

Have your sound turned up to enjoy this website showing the possible direction society is going in. Don't worry, it's harmless.

Edited by Time to raise the rents.

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The inland rev send out letters saying people have been overpaid 1p tax credit so sorting out someone's tax bill is easy - once they're in the system.

Its people not yet in the system that cost money to detect...

I love the pizza sketch very funny

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"Is you tax self assesed? - be extra scrupulous"

"The IR's crackdown on tax avoidance is bad news for all those who fill out self assesment tax returns...."

"Every year HM Revenues and Customs launches around 250,000 investigations or nearly 3% of all self assement returns.... There an alleged £20 - 30bn gap in the Exchequers accounts and it aims to shave off £3.5bn of that by making people pay what they are supposed to"

"You could be fined upto £60 a day for witholding relevant papers. If an honest mistake has been made a settlement will usually be reached but if the IR feels you are HIDING INFORMATION (like not declaring!!??) it could well issue you with an estimate of what you owe and demand payment unless you can prove otherwise"

NOTE -

Its a pretty long story and I could'nt be bothered typing it all out. I think you get the general idea.

Will the man from the Revenue find your friend? well, if he's using a letting agent, accepting Standing Order for rent (it wont be a Direct Debit - thats something completely different), your friends tenant is claiming any benefits, tax credits, child support etc. etc., has registered themselves on the electoral roll...Then the answer is yes, the Revenue know and will get round to him within 7 years. Thats how long they've got to find you! so its not like you can duck the radar really.

Pay up..... before they make you pay up.

Just think about this for a moment - there was a topic running last week about a guy selling his house on eBay and over the course of 2 days without any real effort the amount of information that was posted up on this guy was frightening! Now, that was just a bit of a laugh and I found it highly amusing.....what, I wonder could the Revenue pull up on you in 2 days?

Story from MoneyWeek (11 November issue) page 30 - for those that are curious

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<snip>

Will the man from the Revenue find your friend? well, if he's using a letting agent, accepting Standing Order for rent (it wont be a Direct Debit - thats something completely different), your friends tenant is claiming any benefits, tax credits, child support etc. etc., has registered themselves on the electoral roll...Then the answer is yes, the Revenue know and will get round to him within 7 years. Thats how long they've got to find you! so its not like you can duck the radar really.

<snip>

Story from MoneyWeek (11 November issue) page 30 - for those that are curious

HMRC can go back 20 years in appropriate circumstances.

I am aware of a person who was "dobbed in" by an angry ex-tenant, and the Tax Inspector issued tax assessments for the previous 10 years plus interest and penalties.

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As a tax adviser I feel I must clarify a couple of our local landlords' tax points:

Londonlandlady's point about a deduction of 10% of net rents only applies if the property is let 'furnished';

TTRTR isn't right that your chum can elect a property as his main residence even if it's then let: it is not then a 'residence' so you cannot, strictly, elect that it be exempt. If it has actually been (or is in the future) a 'residence' for him, and he elects appropriately, the period of letting may still be covered by the exemptions by the various exemptions available when a property has been your main residence, but in my view (which is shared by HMRC & the courts) if you can't, and don't live there, it ain't your 'residence'.

There was a point earlier about CGT and three years which I didn't understand, but didn't seem quite right - a gain is taxable no matter when it arises.

In general terms, if it's let unfurnished, as long as the loan was to finance the purchase/capital improvement of his let properties, he should be able to claim the interest against the rental income, as well as other direct costs to do with the letting like insurance, accountants' fees, repairs etc. The rules are sightly more complex when you are letting furnished, as there's more to it than the 10% referred to above.

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As a tax adviser I feel I must clarify a couple of our local landlords' tax points:

Londonlandlady's point about a deduction of 10% of net rents only applies if the property is let 'furnished';

TTRTR isn't right that your chum can elect a property as his main residence even if it's then let: it is not then a 'residence' so you cannot, strictly, elect that it be exempt. If it has actually been (or is in the future) a 'residence' for him, and he elects appropriately, the period of letting may still be covered by the exemptions by the various exemptions available when a property has been your main residence, but in my view (which is shared by HMRC & the courts) if you can't, and don't live there, it ain't your 'residence'.

There was a point earlier about CGT and three years which I didn't understand, but didn't seem quite right - a gain is taxable no matter when it arises.

In general terms, if it's let unfurnished, as long as the loan was to finance the purchase/capital improvement of his let properties, he should be able to claim the interest against the rental income, as well as other direct costs to do with the letting like insurance, accountants' fees, repairs etc. The rules are sightly more complex when you are letting furnished, as there's more to it than the 10% referred to above.

So what you are saying is that he CAN declare it as his main residence and move into it prior to selling it to complete that declaration?

And I am suprised that you assert yorself as a tax adviser, but aren't aware of the 3 year rule?

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Quote "Your friend would be liable for tax on the profits i.e. after interest payments and other expenses at his normal rate of tax. After three years he would also be liable to capital gains on the profit of the property sale.

The fact that it is on a residential mortgage is not such a problem as he would be most likely to get rental permission from his lender for a small upfront fee"

Is this what this meant TTRTR? I didn't see that there was mention anywhere that it had been his main residence, and I didn't want to mislead anyone! Also, the post didn't cover the extra up to 40K exemption, so was not fully accurate anyway, even if you did read in the main residence relief.

Edited by Bedsprings

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  • 342 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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