Rental income

mickwood83 Registered Posts: 12 Regular contributor ⭐ ? ⭐
I have a friend (who based on the response to this email could also be a potential client!)

He owns a flat that he has been renting out for the last 2 years (11/12 being 1st tax year), his mortgage is a repayment mortgage and in his name only. The money he receives each month he uses to privately rent the house he lives in with his wife.

His attitude is he is not making any profit, seeing as he pays about £50 more for the house than he receives in rental income. A common mistake I would imagine.

I have warned him that he is actually making a profit that needs declaring……. The balance of rental income received, less any deductible expenses, wear & tear (fully furnished) and mortgage INTEREST is taxable. The capital repayment part of the mortgage is not a deductible expense.

I’m 99% sure I’m right here, just a bit of clarification please. He is full time employed so the profit combined with salary will be above his PA. I don’t think he even has the luxury of splitting with his wife as her name is not on the mortgage.

Are there any special arrangements or tips to reduce his tax bill here? I can’t think of any but there are far more knowledgeable people out there.

You'd think that management companies & letting agents should maybe make landlords more aware of tax implications.

Thanks in advance for any help!


  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    You are correct. He should declare before HMRC find him. They do find landlords through agents as the agents have to submit a return to them detailing the landlords' information.
  • mickwood83
    mickwood83 Registered Posts: 12 Regular contributor ⭐ ? ⭐
    Thanks for your advice, I don't have the full details re interests on borrowings but I will ask the questions.

    Let’s presume he asks me to sort this out for him, I’m a new MIP and have not yet experienced a case where I need to go back to historical tax years. What is the usual plan of attack for such matters, do I need to contact HMRC by letter/telephone, or is it possible to deal with online through their website?

    Would my plan of attack be as follows
    1 – Make HMRC aware that he is self-employed, receive UTR and set up online account to file self assessments.
    2 – Sort out 11/12 tax bill and fines (I wonder if this year will be available through HMRC online or if a paper copy needs filing?)
    3 – File 12/13 return.

    Any advice would be much appreciated
  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    I would suggest that the first thing you do if have a talk with your client and explain the situation.
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