Tax on rental property

Pigpen

Posted this on chat and then was advised to post it in the members section

A friend of mine has received a letter from the revenue ref a flat she rented for approx 5 years between 2000 & 2005 (How they have tracked her down now I have no idea) Someone suggested the revenue was checking income support claims and if someone living in her flat at the time had claimed then that is how they found her. She knows she should have declared it but that issue is history.

basically for at least two of those years she made less than it cost her to but she reckons in the 5 year period she probably made no more than £2000 in total. Can she carry the losses forward at thia late stage? I have drafted her a response letter basically admitting that she was renting the flat in this period as she won't get away with it and giving them the basic info they require whilst advising them that she is collating all the info for the period concerened and how would they like her to proceed - Does this sound ok?

She lived in the flat herself for the first few years of ownership so I think even calculating how much of the profit she could be taxed on she is outside a capital gains charge as the tax on the profit on the sale is less than that years CGT allowance. She is a lower rate tax payer.

I am thinking that she can deduct agents fees - Mortgage Int payments - insurances - 10% wear & tear (furnished) and some maint costs from the rental income - is this correct ? Anyone got any advice on how she should hadle the enquiry - I am trying to help her but don't want to get it all wrong and mis-inform her. What about fines? what are they likely to be?

Thanks for your help everyone

PP

groundy

HMRC will probably request that she completes a tax return for each of the years that there was rental income and you will need to calculate any tax due, remembering that losses can be carried forward against future rental income.

In the years that she says it cost more that she earned be careful that you are only claiming the mortgage interest element and not the capital. It is a popular misconception of my clients that they shouldnt pay tax because the mortgage is more than rent received and can be tricky to explain.

With regards penalties I have known HMRC be very lenient were there is not substantial tax, however there's no way of knowing until you hear from them.

Pigpen

Thanks Groundy - This is what I thought - I think she will end up owing them less than £500 but will it mean she is made to fill in an annual tax return from now on? Even tho she no longer has the property

Nilesh Mandvia

Pigpen wrote: »

She lived in the flat herself for the first few years of ownership so I think even calculating how much of the profit she could be taxed on she is outside a capital gains charge as the tax on the profit on the sale is less than that years CGT allowance. She is a lower rate tax payer.

When did she sell the property? Capital Gains Tax rates for 2007-08 and earlier individual paid paid Capital Gains Tax at a variable rate (eg 10 per cent, 20 per cent and 40 per cent) based on the amount of their income and gains. From 2008/2009 CGT charged on its own.

For the undeclared rent, she would have to file tax returns for all years. She may receive notice to file SA. If she does, then she has to file the tax return. As she is not renting anymore, eventually HMRC will stop notice to file SA.