filling out my first tax return

[bpascua]

Hello All,

I wonder if someone can help me regarding my tax return. I rented out a property for the first time last year so forgive my ignorance. It used to be my ppr until I moved out and I got my first rent check in September.

So from Sept 07 - March 08 the place was rented out. I understand I have to pay tax on anything other than intetest while the property is let out
(so my mortgage payments capital portion plus any profit I make in a rent check) What I am unsure about is what I do about the months running up to the rental, so (April - August) where I was living there and subsequently I shouldnt be paying tax on the capital portion of my mortgage for the first 5 months of the tax year? is that correct?

My mortgage lender has sent me an intetest statement for the whole of the tax year. Here are my figures.

April 07 - Aug 07 I was in the property
Sept 07 - March 08 the property was let out and I recieved £9450 in rent.

The interest on my mortgage was £7498 for the whole tax year. Can I just divide this by 12 (£624 in interest per month) and say that for the 7 months I was recieving rent I should be paying tax on that (rent was £1350 per month minus interest = £726 profit each month x 7 months worth = £5082)

Of that £5082 after deducting all the costs associated with the rental (letting fees etc) being a higher rate tax payer I need to pay 40% of that. Do I understand this correctly?

Many Thanks

Brian

[King_Maker]

Yes, your methodology is correct.

In addition, you can claim Capital Allowances for the business proportion of computer equipment and motor vehicle (or mileage rates) for travel to inspect the property etc.

There is a 10% Wear & Tear Allowance for furnished properties.

HMRC's booklet IR150 can assist.

[bpascua]

Hi Kingmaker,

Thanks for that. Can you give me an idea of the capital allowances I could claim? for example I have visited the property maybe four times in the last tax year.

Thanks

Brian

[King_Maker]

It's not just the Capital Allowance for the vehicle but also all the running costs and any associated finance interest.

The claim is usually done on a mileage basis.

Alternatively, if your turnover is below the VAT threshold, you can use, by concession, the Inland Revenue's Approved Mileage Rates (40p per mile for the first 10,000 miles, and 25p thereafter) plus any finance interest instead of calculating the business % of all the relevant costs (including Capital Allowances).

Which is the better option will normally depend on the price of the car, its economy and reliability and the business miles travelled.

[bpascua]

One final thing chaps. I understand my tax situation now and I'm just filling out the tax form. The two key numbers I think I need to fill in are the following -

Amounts of rental income you received
Tax deducted from rent

I'm not sure I understand, the rent I recieved was £9450 - what are they actually after for the "tax deducted from rent"?

Thanks for any help

Brian

[King_Maker]

In certain circumstances, tax must be deducted from the rent if the landlord's usual place of abode is outside the UK.