Just wondered if anyone who rents out property, are you allowed to rent it out and act as a business? What I mean is say you earnt £2000 a month, so £24k a year and you take off maintenance/repairs/loan repayments, you would only pay tax on the difference?

 

Would that be the best way of trying to rent out a premises?

 

Cheers

 

Vijay

Personally having a work friend who rents both commercial and private premises, I wouldn't ever do this, certainly not in the current market. However, yes if you register for VAT with HMRC and do it through a proper business, I believe you can offset VAT and taxes etc. I don't know all the ins and outs though, as I don't think you pay VAT on rent, certainly not in a private dwelling anyway.

 

I think Stellaz works in the rental industry? He may be able to offer some advice?

Why wouldn't you do it that way?

 

I was just thinking that you would normally have to pay income tax on the majority of the rent, before you pay out for the loan/maintanaince/repairs etc. If you do it like I said it my original post, only the money you actually make as profit is taxable isn't it?

I didn't say I wouldn't do it that way, I said I wouldn't do IT, as in renting houses out lol I don't own one to rent and although I've considered buying to rent it out, I decided against it.

I know it might be a bad move, but just weighing up all options :)

If youve got a mortgage on it, that will come off it.

Minus fees and upkeep.

 

You'll pay tax on the profit, but a good accountant can show you dont make that much profit, if you know what i mean..

I don't know much, but if you do it as a legit business, you'll pay corporation tax at a lower rate than income tax.

If youve got a mortgage on it, that will come off it.

Minus fees and upkeep.

 

You'll pay tax on the profit, but a good accountant can show you dont make that much profit, if you know what i mean..

 

That's the exact thing I was thinking, to be able to keep the house, it hopefully pay for itself and take minimum profit (so no or next to no tax). I would rather throw any money it may make to pay off the loan.

I don't know much, but if you do it as a legit business, you'll pay corporation tax at a lower rate than income tax.

 

so that can only be a good thing.

Hi Vijay,

 

To address a few issues referred to above - I take it the house is owned (or mortgaged) by you. In which case you cannot rent it as a limited company unless the limited company aquires ownership!

 

Assuming it's yours, then you can indeed rent it as a business. VAT will not be applicable as domestic rent is exempt from VAT regardless of how much you receive in gross income.

 

You are liable for income tax (at whatever rate you as an individual should pay) on the net income. Net income is rent received; less mortgage interest, allowable repairs and legitimate expenditure you will incur in the course of letting the property (eg buildings insurance, maintenance/renewals any rates you pay for the tenant etc etc); plus professional fees (agents and accountants etc).

 

If you let it furnished, then you are also allowed to claim a "wear and tear" allowance (IIRC it's 10% of gross rent less rates).

 

Also remember, if you let the property as a business, then you may well be liable to capital gains tax on any profit when you sell the house - since it will no longer be your main residence.

 

If you need any further advice mate - feel free to PM me. I used to be the tax manager in an accountancy practice. I'm a bit rusty on tax laws since leaving the profession, but I still remember a fair bit!

 

Richard:cool3:

Hi Vijay,

 

To address a few issues referred to above - I take it the house is owned (or mortgaged) by you. In which case you cannot rent it as a limited company unless the limited company aquires ownership!

 

Assuming it's yours, then you can indeed rent it as a business. VAT will not be applicable as domestic rent is exempt from VAT regardless of how much you receive in gross income.

 

You are liable for income tax (at whatever rate you as an individual should pay) on the net income. Net income is rent received; less mortgage interest, allowable repairs and legitimate expenditure you will incur in the course of letting the property (eg buildings insurance, maintenance/renewals any rates you pay for the tenant etc etc); plus professional fees (agents and accountants etc).

 

If you let it furnished, then you are also allowed to claim a "wear and tear" allowance (IIRC it's 10% of gross rent less rates).

 

Also remember, if you let the property as a business, then you may well be liable to capital gains tax on any profit when you sell the house - since it will no longer be your main residence.

 

If you need any further advice mate - feel free to PM me. I used to be the tax manager in an accountancy practice. I'm a bit rusty on tax laws since leaving the profession, but I still remember a fair bit!

 

Richard:cool3:

 

As an experienced and successful landlord I have to say that is a pretty good summary of how it works.

i might just add.....

 

Forget all about VAT. The threshold for registering is around £73000.

im sure the rent isnt that much... even in London!

Forget about running an "incorporated " business. The costs of operating it will outweigh any possible tax savings on a small portfolio of property.

You dont even need to set up any "business" of any type really. You can just fill in the details on the full version of your tax return. There are specific pages relating to "income from property". Both "UK" and "foreign".

 

And finally........

Would that be the best way of trying to rent out a premises?

 

For a first attempt by a complete newbie I would suggest using a well established letting Agent. Yes they will charge but they could save a lot of aggro. Once you gain confidence about the whole process you can ditch the agent and go it alone.

 

And in a similar mode to Richard... get in touch if you want to discuss.:cool2:

some sound advice there, nothing i could add but would echo pete's advice about a letting agent, it can be very difficult to do if your not sure or dont have advice

 

use an agent for a while but make your own rule's to stipulate to the letting agent

 

from my experience you dont want anyone under 35 and if you can dont take single women 9wait's for backlash) but they aint nothing but trouble and are dirty, ive done this for 16 year's (let bedsits) and found women to be very dangerous

 

it is a very hard business as you have to take people on first impressions and once in your house you have to remember you lose certain right's to it, the way i look at it is tht it's not your house anymore, so many rules and reg's, but a letting agent will go through all that with you

Seems like lots of sound advice there, although I would pick a point with Stellaz couple of comments that in general may be very true, but try to use your judgement rather than just age. I'm only 29 and every house I've had (I've been renting since I was 16) has been kept pretty clean and tidy, I've done my own repairs to a high standard if anything has needed doing.

 

I don't bother my landlord for lots of things I just do it myself if I'm able, or I pay a professional (Such as plumbing etc.) for things I can't and my rent is always 12 days early :D I think the single woman comment could be off too, but then that too will depend on their age, profession, stage in life, attitude towards their appearance etc. etc. etc.

 

Also, I'm assuming it's a house and not a bedsit, but most people who want bedsits are potentially not clean people, that being said, I've rented one a few times when I've needed to and the same things I've said above have still applied.

 

I think the letting agent thing is a good idea, but having seen the processes some of them go through to vet a client, as Stellaz has said, I too would advise setting some of your own parameters too. For example, a credit check is all well and good, but just because someone went bankrupt 4 - 5 years ago with their own business, doesn't mean they won't pay rent, just because someone has a good job, doesn't mean they will, etc. :D

 

I'd take Richard and Pete up on their offers for a chat too, nothing like getting solid advice from people who've dealt with both aspects of what you want to do.

im not saying everyone under 35 are no good, but a majority are, my mate rented his house out to his brother's ex (or something similar), she turned out to be a filthy b4stard, piled dirty nappies up in the house, pushed sh1t down all the plugholes, punched hole's in the wall's and so forth and decided that she didnt have to pay the rent anymore, cost a fortune to get her out and payed very little rent

 

we used to take women many moons ago and i reckon out of probably 50 female tennants over the years, only a small handfull were decent, my boss even had the whole sexual harrasment thing thrown at him because the woman didnt want to pay the rent

 

and your right they are bedsit's and if he is taking housing benefit no-one under 35 will get the full rent of anything over the price of the LHA of a bedsit from next january, you or me would not get benfit's over (in sunderland) £43 a week towards the rent or a dwelling

 

also we have the cleanest properties in sunderland (as said by the governing bodies of rented properties in sunderland)

im not saying everyone under 35 are no good, but a majority are, my mate rented his house out to his brother's ex (or something similar), she turned out to be a filthy b4stard, piled dirty nappies up in the house, pushed sh1t down all the plugholes, punched hole's in the wall's and so forth and decided that she didnt have to pay the rent anymore, cost a fortune to get her out and payed very little rent

 

we used to take women many moons ago and i reckon out of probably 50 female tennants over the years, only a small handfull were decent, my boss even had the whole sexual harrasment thing thrown at him because the woman didnt want to pay the rent

 

and your right they are bedsit's and if he is taking housing benefit no-one under 35 will get the full rent of anything over the price of the LHA of a bedsit from next january, you or me would not get benfit's over (in sunderland) £43 a week towards the rent or a dwelling

 

also we have the cleanest properties in sunderland (as said by the governing bodies of rented properties in sunderland)

 

I couldn't agree more with everything you just said tbh :thumbup1:

Thanks everyone, really appreciate the advice. I'm not sue if I'll try and keep hold of my house yet, might not be worth the headaches but I'll weigh it up nearer the time.

 

I certainly will be in touch with you guys who offered, want to be informed on a thing like this so I can weigh the whole thing up ;)