Renting a Property Out

[FieryP125]

I am thinking of renting a property out but was wondering about the tax implications. I understand I will be taxed on the profit I make. My questions are:

1. Will I be taxed on the gross rent or net rent received?

2. If it is the net ( as I think it would be ) are you allowed to subtract the monthly mortgage payment as an expense? Or it it just repairs, insurances, etc?

For example, if I rented a property out for �500pm and the mortgage I was paying was �400pm - would I be taxed on the �100pm profit or the �500pm rent that I would be in receipt of?

All very confusing and the Goverment websites are not much help.

[Loosehead]

1. Net

2. Yes you can deduct all expenses related to running the property, including interest.

in your example you would pay very little as there would be other expenses as well as the mortgage.

[Miss-taken]

What would be the difference between net and gross rent? (assuming you aren't VAT registered!)

[Loosehead]

Well miss-taken, If the rent is �500 then thats gross. After deduction of interest , �400, in the questioners example then the net amount is �100 so in theory �100 is income. In the real worls though there are other expenses to deduct and the whole lot will comeout in the wash in the tax return for the finanial year in question.

[fairline]

All expenses that you incur including mortgage interest (not capital repayments), repairs, insurances, agency fees etc are deductable against rental income received before arriving at any profit. It's fairly straightforward really. Any good agent will guide you and I would strongly urge you to use a good one. I have a number of properties around the country and use Martin & Co because they have lots of offices and you get good advice and service. www.martinco.com

[FieryP125]

Per fairline's reply - I was going to have a standard repayment mortgage - so I would not be able to deduct that as an expense?

[Pumpsticks]

You could deduct the interest part of the repayment but not the capital part. The reason many buy to letters borrow on an interest only basis is for this reason- it keeps things simple. Your lender should however provide guidance on the exact split.