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bigduckontax, Accountant
Category: Tax
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I rent a house to my daughter and she claims housing benefit

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I rent a house to my daughter and she claims housing benefit - I get £290 a month in rent (via housing benefit) and the mortgage costs me £670 a month. I also pay £45 a month for the new boiler we had fitted and £150 a year building insurance. Ive never declared this to the tax man as I dont make any money from the rent. Should I be declaring it?
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Only the interest element of the mortgage is allowable against income for Income Tax (IT) purposes. The 45 quid a month for the boiler is only allowable if it was a replacement and not a new item. Were it the latter it would be an improvement and help offset Capital Gains Tax (CGT) when you come to sell in the future. Here is a good guide from Which setting out expenditure which can be offset against rentals: 'The most common types of expenses you can deduct are:water rates, council tax, gas and electricitymaintenance and repairs to the property (but not improvements)contents insuranceinterest on a mortgage to buy the propertycosts of services, including the wages of gardeners and cleaners (as part of the rental agreement)letting agents' feeslegal fees for lets of a year or less, or for renewing a lease of less than 50 yearsaccountant’s feesrents, ground rents and service chargesdirect costs such as phone calls, stationery and advertising for new tenantsThe expense should be incurred wholly and exclusively as a result of renting out your property.' If after all that, and I suggest that the interest element of the mortgage repayments only being allowable might shoot a considerable hole in your figures, you are making a loss then this may be carried forward against future rental income. In any event you are in receipt of income which has not been taxed at source and thus must be declared to HMRC, even if you are making a loss. You do this on your Annual Self Assessment Tax return. I am so sorry to have to rain on your parade.
Customer: replied 2 years ago.
Oh no! Ive been renting it to her for the last six years! Will I be in trouble? I was told by an accountant friend when I first started renting the house that I didnt need to declare it because I was making a loss
But are you making a loss? You might not be as I explained. Furthermore if you ever lived in the house either before of after the rental period then you would be entitled to Lettings Relief (LR) in addition to your non cumulative Annual Exempt Amount (AEA), currently 11.1K to offset the CGT on the gain when you sell. LR is available up to 40K. If you had not declared the rental position then firstly carrying forward losses would not be possible and secondly very valuable might be LR refused on sale.
Customer: replied 2 years ago.
I lived in the house from 2001 - 2008. It was empty until my daughter started renting it in 2010. The rent has been around £290 per month since then. The mortgage was £790 until 2013 and then reduced to £670. The boiler was a replacement. I've always assumed we were subsidising my daughter so saw no need to declare this. Now I'm worried! I've juts checked what an interest only mortgage would be and it seems to be around £280 a month. How do I now declare six years to the tax man?
You have to go cap in hand and make your peace with your tax office, amend your returns for the relevant years and pay any IT due. HMRC may charge interest on underpaid tax, only fair as they pay interest on overpaid tax, and impose penalties for failure to declare the income. A quick calculation reveals that 290 - 45 - 280 = -35 so you are indeed making a loss without taking into account the plethora of deductions mentioned by Which in their article. In such a situation HMRC might not impose penalties as there has been no loss of revenue..
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