HMRC’s campaign doesn’t just include landlords who own and let properties as a business but also people who become landlords for 
many different reasons and they may not even think of themselves as a landlord. This could be because they’ve:
- inherited a property
- just rented out a flat to cover mortgage payments
- moved in with someone and need to rent out their house
There are some common tax errors people make when renting out their property and these are part of the Let Property Campaign which include the following examples:
Moving in together
Often when getting together a couple will decide to share one of their properties and rent out the other rather than sell it. In such cases it’s common to think that as there isn’t any profit which needs to be taxed because the rental income just covers the mortgage payments.
When working out rental profit, you need to be aware that the only allowable expense for the mortgage is the interest amount of the mortgage repayment. That rental profit must be declared to HMRC.
Inheriting a property
If you inherit a house and decide to rent it out rather than sell it and then use a local letting agent to find tenants and collect the rent you still need to declare rental profit. It maybe the case that the agents also organise any repairs to the property, deducting the costs from the monthly rent they collect.
Property bought as an investment
Be aware buying a property for rental might involve paying extra tax. The HMRC guidance can help you to work out if you are making a profit from any rental income which will need to be declared to HMRC.
if the property is sold at a later date Capital Gains Tax needs to be considered.
Divorce
Where a couple jointly own a house and are getting divorced and decide to rent out their jointly owned house and both move into smaller properties there are tax implications even where a letting agent is used to find a tenant and collect the rent. Each person will need to declare their own share of their rental profits to HMRC.
Relocation
If you moved to another area because of your work and rented out your existing house you need to tell HMRC about rental profit.
Care home
If you move into into a residential care home, and in order to pay the care home fees rent out the house you own through a letting agency even if all the rental profit goes towards care home fees you still need to declare rental profits.
Jointly owned investment property
If you have jointly purchased an investment property which which you plan to renovate and rent out you will have to declare rental profit to HMRC but also be aware that you can claim certain allowable expenses.
If one of you is a higher rate Income Tax payer it may be possible to include all the allowable expenses on that relevant Self Assessment tax return, to reduce the amount of tax paid. However, the rules are complex so make sure you’re accounting for rental income and expenses correctly. There is specific guidance from HMRC about jointly owned let property.
Property bought for family member at university
A common scenario for parents who can afford it is to buy a property for their child to live in while at university and not charge any rent. However the situation may not be straight forward. For example, their daughter allows friends to move in and those friends pay rent to her parents and the rent received is more than the mortgage payments. Because the arrangements with the flatmates are informal you could mistakenly believe there is no tax to pay.
Even if you are an employee who has your tax deducted under PAYE you both still need to declare the rental profit to HMRC after deducting allowable expenses.
Armed Forces
If you are in the armed forces and your next posting is an army base abroad where you will move with your family you may be tempted to rent out your family home in the UK to a friend. There could be tax implications to renting out the house and you need to check the rules for non-resident landlords and declare rental profit on a Self Assessment tax return.
Tied accommodation
If you are a landlord of a pub and move into the flat above the pub and decide to rent out your house, possibly to a relative which means charging only the equivalent of the monthly mortgage payment there are still tax implications even though you aren’t making any money from renting out your house. Even if there is no official paperwork and you see it as just helping out a family member there are tax implicaitons.
In this instance treating the whole mortgage payment as an allowable expense is incorrect. The only allowable expense for the mortgage is the interest amount of the mortgage repayment.
Property and tax is a complex area as it falls under a number of regulations. Why not talk to one of our property tax experts who can advise on how to approach the tax situation on any property you own whether a portfolio of commercial properties or the sale of a single property.
