Are you an “accidental landlord” and are you disclosing the income to HMRC?
An accidental landlord is one where a property owned was never intended to be let out, but for a variety of reasons it has been. This might be due, for example, to inheriting a property that has not been sold, or being forced to let out a home that would not sell.
Unfortunately, many people will look at the income and compare it to the outgoings and say they have not made any money, so there is no need to notify HMRC. However, whilst the mortgage payments mean there is negative cash flow, only the interest element of the repayments can be deducted – and that is only allowable at a 20% rate.
A simple example: Mr Smith lets a property for £12,000 p.a. and pays £14,000 p.a. mortgage repayments. He is therefore out of pocket by £,2000 p.a. in terms of cash. Of the £14,00, only £6,000 is interest and the rest is capital. Mr Smith has an employment and is liable at 40% tax on some of his income.
The tax position is
Income £12,000 @ 40% = £4,800
Less tax relief on interest £6,000 @ 20% =£1,200
Tax payable £3,600
Do you, or anyone you know, have a similar scenario?
Talk to us now – we can help quantify the liabilities and help you disclose it to HMRC to reduce potential penalties. Be aware that interest will be charged too.
