Tax on rental income question

[andyals]

Hi All.
I bought my BTL property in March 2006.
It was my understanding that if the outgoings exceeded the rental income, (which in my case it does) then there was no tax liability, and so I have not done anything in relation to the inland revenue.
I recently got into discussion with someone more knowledgable than me, who said you still have to fill out a tax return.
I'm now very scared.
Am I going to get hit with a huge fine.
I'm now terrified about contacting them.
As I said, if my information is correct and interest payments on my mortgage can be off set against tax, then I do not have any liability in that sense, but I am now very frightened I maybe in trouble for not letting them know.
I really hope someone can put my mind at rest.

[mind the gap]

I bought my BTL property in March 2006.
It was my understanding that if the outgoings exceeded the rental income, (which in my case it does) then there was no tax liability, and so I have not done anything in relation to the inland revenue.
I recently got into discussion with someone more knowledgable than me, who said you still have to fill out a tax return.
I'm now very scared.
Am I going to get hit with a huge fine.
I'm now terrified about contacting them.
As I said, if my information is correct and interest payments on my mortgage can be off set against tax, then I do not have any liability in that sense, but I am now very frightened I maybe in trouble for not letting them know.
I really hope someone can put my mind at rest.

Please don't be terrified. In the great pond which is the UK tax system, you are the equivalent of a uni-cellular organism like an amoeba and they are not going to do anything appalling to you. I strongly recommend however that you pay for an hour's consultation with an accountant who (may even save you more than you pay him. Mine did). S/He will help you sort out what you can claim for and how to complete your tax returns fro the last three years. It will help if you go armed with a written list of what you have paid out and when (mortgage interest payments, maintenance, repairs, letting agents' fees if agents used, etc) and what income you have received (presumably rental payments). Your accountant will not need every receipt from B & Q at this stage - as long as what you're claiming for is reasonable, it is unlikely to be questioned.

The accountant will also (if you want them to) complete and submit your returns for you, although this will cost more - perhaps about £500 for 3 years' worth?

Then submit the returns (one for each tax year year up to April 6 2010) with a grovelling letter saying that since you are making no profit/making a loss, you didn't realise you had to submit them, but now you realise you do, and here they are, and you're very sorry.

There is in theory a £100 fine for not submitting a return on time, but I missed the deadline once and nothing happened.

Don't worry! They have much bigger fish than you to fry.:)

[subjecttocontract]

One further point to add to the excellent advice you've already received.....losses can be offset against future profits so, thats even more reason to formally record them.

[mind the gap]

One further point to add to the excellent advice you've already received.....losses can be offset against future profits so, thats even more reason to formally record them.

Very good point. Thank you, stc.

[StevenHolden-mfg]

Provided you don't owe any tax there should not even be a late filing penalty. The unwritten rule with HMRC has always been the penalty cannot exceed the tax.

Unfortunately, from April 2011 this will change, and regardless of the amount of tax due you will get hit with a late filing penalty of £100. Great new income stream for HMRC!

Steve

[Always Problems]

After you have seen an Accountant you will feel a great sense of relief, you will wonder why you did not do it before. But when you go, take with you 5 years Bank Statements showing morgage paid out, rent received from day 1, Together with your solicitors fees for the original purchase. you will have to provide all this information. I could be wrong but the Revenue will be perfectly happy that you have now decided to inform them but will want your new Accountant to be precise.

[Telometer]

I bought my BTL property in March 2006.
It was my understanding that if the outgoings exceeded the rental income, (which in my case it does) then there was no tax liability,

This is only the case if the outgoings are tax deductible. Any repayment element of a mortgage will not be.

[Wickerman]

Also - if you have done an equity release, only the mortgage amount to the value of the property on first letting is claimable.

As an example - property worth 35000 on purchase, mortgaged at say 30000. 5 years down the line you remortgage it at 100,000. Property value at time of first letting was 30000 so therefore you can only claim for the first 30000 of mortgage amount (eg the interest paid on 30000).

I have ABSOLUTELY no idea who this would be enforced, though, or even if it is looked at by HMRC.