Renting UK property

[winkle100]

Not that I would ever do it as its naughty but a close friend asked me to ask this question;

 

Say he was to rent his property and not tell his mortgage people that He's renting it out - only because they want an extra 2% on top of his current payments.

 

So if he was to do it which he,s not how would they ever find out?

 

What would or could they do if they found out?

 

As long as he have landlords insurance he's all good right?

[devon67]

he'd be breaking the contract on his mortgage, so no he wouldnt be alright

BUT as long as he re directs his post to a UK address then why should the company find out

[winkle100]

he'd be breaking the contract on his mortgage, so no he wouldnt be alright

BUT as long as he re directs his post to a UK address then why should the company find out

 

Thanks

 

If he redirected would that not be an indication that he no longer lives there?

 

 

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[Tamsalina]

Thanks

 

If he redirected would that not be an indication that he no longer lives there?

 

 

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He doesn't actually have to be living there though...! Not that I'm naughty or anything.... but I've been in this situation! He can tell them he's going to be putting the house up for sale and has moved out.

[Ken]

Thanks

 

If he redirected would that not be an indication that he no longer lives there?

 

 

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Not if he has the post office doing the redirection then they wouldn't know.

 

Incidentally if you rent your home to a relative (I know that's not an option for most people but still worth mentioning for the few) then it still counts a residential and not a buy-to-let mortgage so you don't have to pay any extra interest.

[winkle100]

I've one more question regards paying tax on a house your renting, I'm not sure what will benefit my friend in the long run out of the 2 below:

 

He thought that if you didn't make a profit then you don't pay any tax like number 1 below;

 

1,rent the house for 1000 PCM but pay £850 mortgage and £150 to the letting company to manage it = you don't make any money so you don't pay any tax, just capital gains when you sell it.

 

2, or You rent the property for 1000 PCM and pay interest only, £350 mortgage and letting £150 so you make £500 profit so you pay more tax? But less capital gains as when you sell it as I've paid less of the house off?

 

Is that how it works?

 

How do they work the tax owed out?

 

What's confusing when the accountant asks for your accounts never wants to know how much rent you've made that year so he can add it to your wages so he can work the tax out from that,he just wants to know how much interest you've paid, how does he work out how much tax you've got to pay -confusing!!!!!!!

 

Thanks

[devon67]

you have a tax allowance per financial year i thinks its approx £4K when renting out property if your income doesnt exceed that then youre ok and you dont need to make a tax form

 

if you sell the house and make profit then you'll need to pay CGT

[Ken]

I've one more question regards paying tax on a house your renting, I'm not sure what will benefit my friend in the long run out of the 2 below:

 

He thought that if you didn't make a profit then you don't pay any tax like number 1 below;

 

1,rent the house for 1000 PCM but pay £850 mortgage and £150 to the letting company to manage it = you don't make any money so you don't pay any tax, just capital gains when you sell it.

 

2, or You rent the property for 1000 PCM and pay interest only, £350 mortgage and letting £150 so you make £500 profit so you pay more tax? But less capital gains as when you sell it as I've paid less of the house off?

 

Is that how it works?

 

How do they work the tax owed out?

 

What's confusing when the accountant asks for your accounts never wants to know how much rent you've made that year so he can add it to your wages so he can work the tax out from that,he just wants to know how much interest you've paid, how does he work out how much tax you've got to pay -confusing!!!!!!!

 

Thanks

 

As far as UK tax is concerned the capital repayments included within your mortgage are not tax deductible, only the interest. So if in your first example the mortgage payment is £850 but only £350 is interest then you've made a profit of £500 on which you have to pay tax (the fact you've spent that £500 profit reducing your mortgage balance is irrelevant - you still have to pay tax even if you've spent it). I would expect Australian tax to work the same way. I've no idea how your accountant works our the tax if he ignores how much rent you've received however!!

[winkle100]

So really it's best just to go interest only and stick the profit each month in the bank.

 

This way the return will be the same as if i were to pay the mortgage off but I pay less capital gains because I only paid interest?

 

I have £100.000 equity in it and I intend on selling it in the next few years anyway.

 

Apologies finances were never my strong point!

[Freckleface]

So really it's best just to go interest only and stick the profit each month in the bank.

 

This way the return will be the same as if i were to pay the mortgage off but I pay less capital gains because I only paid interest?

 

I have £100.000 equity in it and I intend on selling it in the next few years anyway.

 

Apologies finances were never my strong point!

 

 

Are we still talking about your 'friend'? :wink:

[winkle100]

Smart arse!

 

 

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[winkle100]

The games up! I caught myself out DOH!

[Freckleface]

The games up! I caught myself out DOH!

 

Actually I think that says a lot about your general level of honesty - you are clearly not used to telling porkies and that's a good thing. :laugh:

[Ken]

So really it's best just to go interest only and stick the profit each month in the bank.

 

This way the return will be the same as if i were to pay the mortgage off but I pay less capital gains because I only paid interest?

 

I have £100.000 equity in it and I intend on selling it in the next few years anyway.

 

Apologies finances were never my strong point!

 

The capital gain is the difference between what you paid for the property and what you sold it for. The mortgage is not part of the equation. The tax on the capital gain is identical regardless of whether you had a mortgage to buy the property or not and regardless of how much of the mortgage you paid off. Unless you can get more interest on your bank deposit than you are paying on your mortgage you'd be wisest to pay down the mortgage rather than leaving it in the bank (does of course also depend on whether or not you need access to the money in the future).

[bensym]

If you have lived in the property (before renting it) as your principle place of residence, you get tax relief on CGT. Definitely in Australia, but not sure under British tax law.

[Ken]

If you have lived in the property (before renting it) as your principle place of residence, you get tax relief on CGT. Definitely in Australia, but not sure under British tax law.

 

There's no UK CGT to pay on the gain that occurred while the property was your "principal private property" however once it ceased to be (because you took up residence elsewhere) then the gain is taxable. I recall there is a time period after you cease to live there that you can sell it within and still not have to pay any CGT (unfortunately I can't remember how long that is) but if you don't sell within that window the gain runs from when you ceased to be resident.

[winkle100]

I believe my accountant said it to be 3 years- don't hold me to that though..

 

 

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[Heather Law]

The capital gain is the difference between what you paid for the property and what you sold it for. The mortgage is not part of the equation. The tax on the capital gain is identical regardless of whether you had a mortgage to buy the property or not and regardless of how much of the mortgage you paid off. Unless you can get more interest on your bank deposit than you are paying on your mortgage you'd be wisest to pay down the mortgage rather than leaving it in the bank (does of course also depend on whether or not you need access to the money in the future).

 

If you sell your house for less than you paid for it would you still pay CGT?

[Ken]

If you sell your house for less than you paid for it would you still pay CGT?

 

No, you only pay tax on the Gain (hence the G in CGT).

[winkle100]

Its been calculated roughly I'm going to owe 11k in capital gains- great!

 

Silly question but would I pay less CG if I opted to pay it in Australia or the UK or is it same where ever you are?

 

 

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[Rupert]

Its been calculated roughly I'm going to owe 11k in capital gains- great!

 

Silly question but would I pay less CG if I opted to pay it in Australia or the UK or is it same where ever you are?

 

 

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You cannot opt to pay tax wherever you prefer, there is a taxation treaty between the two countries that governs this.

[winkle100]

So I suppose when we move the end of the month we then are part of the Australian tax system and pay it there?

 

 

 

 

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[Rossmoyne]

You also need to give serious thought to your insurance. If you rent out your property and do not tell your insurance company, you could find that in the event of a claim (say the tenants set light to it or something), you might not be covered by insurance. I understood that if you were not living in your property and were renting it out that you needed Landlord insurance. Part of the application process for this asks who holds the mortgage on your property (if there is one). This could be where your mortgage provider then knows that you are renting it out. All sounds very shonky to me. Remember honesty is always the best policy.

[Guest]

depends how long you have owned your property.

 

If you have owned it longer than 6 months then you can just get prmission to rent (just rent it out and tell them you moved to Oz temporarily say for a year)

 

Depends on the morgage company, if they dont do that then the other option is if you have owned it 6 months and have 25% equity you can switch to a buy to let anyway but it may cost you 200 quid to do so but I can tell you there are buy to let interest rates that are the same as normal morgages (due to regular morgages being a rip off at present)

 

Re directing your post doesnt make any different, its just a billing address anyway.

 

If I were your 'Friend' I would just rent it out and go. End of the day as long as you pay the bills your keeping your end of the bargain. As long as you can say that when you bought it you intended to live there or indeed did live there then there's no dodgy dealings.

 

Life circimstances change and a morgage can't hold you back. say if you lost your job in the UK then were offered one in OZ you wouldnt say no and stay on the dole and not pay the morgage as your contract says you shouldnt...........

 

Morgage companies make a lot of money out of you over the term and cash is what there interested in... nowt else.