What tax do I need to pay and when?

[stevodog]

hi all,

I am very new to this so please forgive me if this has been asked for or if there is a very straightforward answer (as I imagine there probably is ).

I own my own property and am in full time employment paying NI and PAYE tax. I have also recently purchased my first (and probably only) rental property in december last year.

The property came tennanted and until the end of Feb when she absconded she failed to pay any rent. I have managed to get her deposit out of the bond so that has offset a little but a large loss has been made paying morgage repayments for 3 months with no rent.

All things told (purchase fees, solicitor fees, morgage fees, insurance, travel to and from property, management company fees etc) I am down by approx £4000.

Anyway, I am just wondering if someone would kindly explain:

1. whether I am able to claim this against my PAYE tax for the year or not
2. and if so what am I entitled to claim
3. How would I go about claiming.
4. Does the tax year for this go from april to april as normal
5. When does all this information need to be completed by.

Next year should be less of a loss but will no doubt be a loss as my current interest only morgage exceeds the rent by over £80 a month.

Again my appologies if this has been asked before, but any help would be very much appreciated by this novice :o

Thanks in advance,

Steve

[TaxationPete]

1/. No
2/. NA
3/. NA
4/. Yes
5/. have you informed HMRC you are a landlord and require a SA with the property pages. ? Completion of this is by the 31st of Sept 08

The rental losses will offset the gain with a new tenant but why are you renting for less than the mortgage interest. I suggest you review urgently the rental value before any new tenant.

There are quite a few good books which you should read which will help you a lot. Regards Peter

[stevodog]

1/. No
2/. NA
3/. NA
4/. Yes
5/. have you informed HMRC you are a landlord and require a SA with the property pages. ? Completion of this is by the 31st of Sept 08

The rental losses will offset the gain with a new tenant but why are you renting for less than the mortgage interest. I suggest you review urgently the rental value before any new tenant.

There are quite a few good books which you should read which will help you a lot. Regards Peter

Hi Pete,

Thanks very much for your reply. It is very much appreciated. And appologies for me asking so many questions. I have no idea what I am supposed to do with relation to tax.

I have not informed the HMRC as of yet. Do I need to do this asap?

So do I have to fill in a self assesment just for that property?

When will this help offset any gains? If I do not have any gains then the losses are just that, losses and cannot be offset against my usual earnings / CGT or anything else?

With regard to renting out less that the Interest of the morgage. The property is valued at £115K with an IO morgage of £103K (approx £560 a month). The rental valuation has been given by several people between £475 and £550 a month. I am currently renting at £500 a month. After management company stoppages I get around £440 a month. Does this sound abnormal or do most people buy properties worth that sort of price and rent for much more?

Again thanks very much for your input and I would very much value your reply to this one.

Kindest Regards
Steve

[TaxationPete]

Yes call them.
No the SA deals with all your sources of income and interest from savings of which you may have to request an annual SC352 from each savings provider ( Not Isa's, Pep's etc ).
You need to carry the losses forward to offset against potential future gains.
Did you do all the figures before venturing into B2L. With the uncertainly in the property market at present and probably for the next 3 years or so there may be very little gain in the property value. So what tempted you to buy this property and rent it ad a loss. Did you take advise on this venture befor jumping in. Regards Peter

[stevodog]

Thanks again for the reply pete,

Ok, I shall be giving my local tax office a call in the next few days.

Just to get this straight in my mind. Will my losses only counteract any proffit next year, or will any losses keep amounting until I have some proffit to offset against?

To be honest, I did not realy do all the figures. I set the purchase in to motion last June and assumed that a BTL is a great investment. The property in question is a long term investment - 10 to say 20 years, in leu of a pension. My thoughts are that it is better for me to throw £1000 - £2000 a year at a property over 10 to 20 years than at a pension?

In my search for a property to let I am sure I did not find any properties that on a 90% IO morgage would actually make me any net proffit each month. Are there any areas where a property can be bought and make a proffit with an IO morgage?

I admit I did not take the amount of time looking in to the best area / best time to buy. This is something I now wish I had invested more time in.

Again thanks for your replies, they are very much appreciated!

Steve

[TaxationPete]

Any losses are carried forward each year until you have a profit. You should consider buying another property a bit run down and do it up then remortgage it to gain capital and rent it out at a better yeild. For a pension it will take more than one property to look after you. This is not advice just a consideration for you. Regards Peter

[King_Maker]

I agree with TaxationPete - revenue loss with the hope of capital appreciation is a very risky Business Model - especially with the current fall in property prices and "credit crunch".

IMHO, you need a yield of at least 8.0% to cover voids, repairs etc to make a BTL stack up.

[stevodog]

Hi King_maker.

I do agree with you. I started the purchase back in May / June last year when things still looked rosy for the housing market. I agree I was naive, however I have a tracker morgage which has come down to £25 less than the rent. I shall be sacking the management company in a few months whom suck £75 / month out of the rent, so then instead of being £50 down each month after the morgage I shall be £25 up before any other bills etc.

Far from great I know but I shall just have to hope that the property market starts moving in the upward direction again sometime in the next 5 years.....

... its going to cost me far too much to sell the place now!

thanks again,
Steve