Can capital repayments be offset against rent?

[jase_31@hotmail.com]

Couple of tax questions.

a) Am I correct in assuming that only the interest be offset against the rent? (i.e not any repayment of capital)

b) If the mortgage (interest only) is equal to the rent, there is no profit. In this case does a self assessment tax return need to be completed?

c) If the interest is higher than the rental income, a loss would be incurred. Could this loss be offset against other taxed PAYE income through the return?

[Tax Accountant]

Couple of tax questions.

a) Am I correct in assuming that only the interest be offset against the rent? (i.e not any repayment of capital)

Yes. Imagine that you borrowed 70% to buy a house costing £100,000. Really speaking, you have only paid £30,000 as down payment and the other £70,000 is borrowed from someone else. Therefore, capital repayments are only what you should have paid in the first place towards buying the property if you did not take any mortgage. Does this make sense to you?

b) If the mortgage (interest only) is equal to the rent, there is no profit. In this case does a self assessment tax return need to be completed?

Yes. There would of course also be other expenses of letting, buildings insurance, repairs etc. Therefore, you will have either a loss or a profit after all expenses have been taken into account. If it is a loss, it needs to be declared and claimed for use against possible letting profits in later years.

c) If the interest is higher than the rental income, a loss would be incurred. Could this loss be offset against other taxed PAYE income through the return?

No. Any letting loss can only be set against other letting profits of the same year and any losses still remaining can only be carried forward to later years.



See replies above in red.
Ramnik