Income tax on interest only mortgages?

[joe]

Hi There.

I am about to rent my property out to friends, as to cover my mortgage while I attend university for 3 years, not for profit. I will be working part-time while I am away which will use up my tax allowance, so it seems that I will have to pay tax on my rental income.
I only have an interest only mortgage, is this an expense? Any profit that I make with my property will come when I sell it, and then I will be liable to pay Capital Gains Tax. Is this right that I should be paying tax twice on any profit I make on my house?
I would be grateful for any help with this, as I have been to my local Inland Revenue office who weren't so keen to point this out or help me any further.

Thanks
Joe.

[Tax Accountant]

Hi There.

I am about to rent my property out to friends, as to cover my mortgage while I attend university for 3 years, not for profit. I will be working part-time while I am away which will use up my tax allowance, so it seems that I will have to pay tax on my rental income.
I only have an interest only mortgage, is this an expense? Any profit that I make with my property will come when I sell it, and then I will be liable to pay Capital Gains Tax. Is this right that I should be paying tax twice on any profit I make on my house?
I would be grateful for any help with this, as I have been to my local Inland Revenue office who weren't so keen to point this out or help me any further.

Thanks
Joe.

Interest is fully allowable as an expense against any rental income. You could also deduct other expenses which you may be paying such as property insurance, maintenance and furnishings wear & tear allowance (if let as furnished).

I don't understand your comments about paying tax twice on any profit. If you rent your house and make any profit, it is taxed to income tax.

Additionally, if the value of your house increases over and above the amount you paid to buy it, you may have to pay capital gains tax on it.

But if you lived in the property as your main home before and/or after letting to your friends and/or anyone else, you will be entitled to generous reliefs for principle private residence (PPR) in respect of periods of using it as your residence plus the final 3 years (even if let during the final 3 years), lettings relief of upto £40,000, taper relief and annual exemption.

It may be that you will not have to pay any CGT at all, or very little compared to the amount of value it has appreciated. However, this depends on use of the house and increase in value in the future until sale.

Ramnik