I am another one that has been lurking behind the scenes for the past year or so and so firstly want to formally introduce myself to the forum and thank everyone for the invaluable information and advice that has been posted. I am working in the south west as a bookkeeper to local business.
My question relates to self assessment. I have a self emp client who is in rented accommodation whilst he rents out his house. He relocated in the past year and is trying to sell his house so he can buy. He rents it out in the meantime to enable him to rent in his new location.
I understand that you must declare income from property but does that still apply if your rented out house is your main/primary/only residence?
The real issues though with people letting out their main residence are the invisible ones.
I'm thinking particularly here of capital gains which will not become evident until the property is sold.
The owner will have the final three years of ownership where provided that they have at some stage lived in the house it is deemed that they are resident whether they are or not.
Plus periods working abroad do not count, plus up to four years working anywhere else in the UK.
But, what I'm trying to elude to is that when clients start renting out their main residences the idea that there are no tax consequences on sale of the property can in certain instances no longer hold true and clients need to be aware of this and to plan for how long and for what periods the house is rented out.
As the client is attempting to sell the rented house this is unlikely to be an issue but just for them to be wary of should the client determin that the rental income is quite nice and decide to keep the property on rental for longer than initially envisaged (note that periods of absence are cumulative so that would be absence in total not absence in any one period of absence).
They will also need to get permission from their mortgage provider to rent out the property. Whilst sometimes this is a mere formality clients do forget that until the mortgage is paid the house actually belongs to the mortgage company as it is security for the debt and the terms of the agreement are likely to forbid renting out without direct permission.
Remember that when run as a business the interest (only) part of the mortgage will be allowable as an expense.
Hope that something in the above helps a little with the client.
Sure others will be along imminently to fill in the gaps that I may have missed,
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
It's what I expected but it was niggling me a bit about paying a mortgage and rent out of taxed income and then only being able to claim tax back on mortgage interest. It felt 'unfair' compared to only having a mortgage and no rent to pay. He's not trying to be a landlord just stuck with an unsold house.
