renting out a UK property

Old Apr 7th 2016, 7:35 pm
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Default renting out a UK property

Hi

I am moving to the Cayman in July/August 2016 as a professional and wish to rent out my main residence London property. I have no other properties.

1. Could anyone who rents their UK property, please explain the tax position on the rental income? As I would not dare upset HMRC.

Hopefully a simple answer with lots of people in the same boat!

2. Out of interest does anyone do this other than through an agency without informing their mortgage provider. Not looking for a lecture just out of interest.

Cheers

Last edited by caymandavid777; Apr 7th 2016 at 7:42 pm. Reason: clarification
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Old Apr 8th 2016, 7:54 am
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Default Re: renting out a UK property

You report your income less mortgage interest and expenses to HMRC via self assessment each year. You may well find that the profit falls below the annual personal allowance and thus no tax to pay.

You would need to look into Cayman Island tax, or is that a tax free territory like Bermuda?

If you are using a management agent then they are generally required by law to deduct tax at source before paying the rental income over to you. However if you tell them you are an overseas landlord, then you can fill in a form so that they may pay the rent over to you before tax is deducted at source. The income still forms part of UK taxable income, the form is purely about timing of payment.

I am not clear what you mean in your second question about doing this "other than through an agent" without telling the mortgage provider? In that I am not sure what the agent - presume you mean letting agent - has to do with your mortgage? Or have I misunderstood that?

I made enquiries with my mortgage provider about switching to a suitable mortgage however they didn't provide them and I really didn't want to remortgage. They said that they would allow me to rent out for two years on a regular mortgage though. I went quiet at that point and just kept on the original mortgage for about 3-4 years, whilst letting through an agent and then I paid the mortgage off.

I made sure my insurance was proper landlords insurance and read the policy carefully to ensure no reference to the type of mortgage and there was not. Never a issue with the bank, so long as payments ar kept up they are generally happy.
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Old Apr 8th 2016, 1:44 pm
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Default Re: renting out a UK property

Thanks, helpful, just so I am clear:

1. So it is tax on the profit (i.e. the rental income minus mortgage interest, but not capital repayments, and expenses)? Do your offshore earnings reduce your personal allowance albeit they themselves are not taxed (yes, Cayman is tax-free like Bermuda)? Do you know if it is all still the same position after the various UK tax changes effective 1 April 2016?

2. I should have separated the point about the agent and the mortgage lender. I had assumed if you went with an agent, the game would be up re the mortgage lender, as the agent might blunder and inadvertently inform the lender, or you would end up on rightmove etc! Good to hear otherwise. Also good to hear that landlord insurance can be found that is not invalidated if you do not tell your mortgage lender. That confirms my initial enquiries with Direct Line and others.
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Old Apr 8th 2016, 1:59 pm
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Default Re: renting out a UK property

I think most of the larger agents will not handle your property without written consent to let from the lender.
If you opt to let it without an agent and the mortgage is being paid the lender would probably be none the wiser.
If you are letting without consent and paying landlords insurance a large claim may be denied.
You will find someone to rent the property very quickly our house was on the market for one day.
To manage the property from the Caymans would be a challenge unless you have someone in the UK who can take care of maintenance, credit and background checks and preferably inspect the place every three months or so.
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Old Apr 8th 2016, 3:23 pm
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Default Re: renting out a UK property

Originally Posted by caymandavid777 View Post
Thanks, helpful, just so I am clear:

1. So it is tax on the profit (i.e. the rental income minus mortgage interest, but not capital repayments, and expenses)? Do your offshore earnings reduce your personal allowance albeit they themselves are not taxed (yes, Cayman is tax-free like Bermuda)? Do you know if it is all still the same position after the various UK tax changes effective 1 April 2016?

2. I should have separated the point about the agent and the mortgage lender. I had assumed if you went with an agent, the game would be up re the mortgage lender, as the agent might blunder and inadvertently inform the lender, or you would end up on rightmove etc! Good to hear otherwise. Also good to hear that landlord insurance can be found that is not invalidated if you do not tell your mortgage lender. That confirms my initial enquiries with Direct Line and others.
Yes tax on profit but capital repayments are not tax deductable and do not come into it.

There is no reason why a letting agent should ask or be interested in your mortgage arrangement or otherwise.

A lot of people worry that their insurance would be invalid if they do not have mortgage providers permission to let. But as I say, just read the insurance policy, it probably won't even refer to the mortgage arrangement and if this is the case, no reason to worry. By the way, I have spent a very significant part of the last twenty years in the insurance industry. .

You must get landlords insurance.

Last edited by Bermudashorts; Apr 8th 2016 at 3:29 pm.
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Old Apr 8th 2016, 5:08 pm
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Default Re: renting out a UK property

Originally Posted by Bermudashorts View Post
You would need to look into Cayman Island tax...
There is no Income Tax in Cayman***, and we don't have to disclose our income or expenditure or property to anybody. I can't advise on your UK tax situation, except to say that the Cayman authorities have no interest in it.

*** We have plenty of taxes, but they're all consumption taxes or user-fees.
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Old Apr 8th 2016, 5:28 pm
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Default Re: renting out a UK property

NB your uk property will be liable for capital gains tax, which might easily wipe out any profits made on renting, careful...
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Old Apr 8th 2016, 5:50 pm
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Default Re: renting out a UK property

Originally Posted by uk_grenada View Post
NB your uk property will be liable for capital gains tax, which might easily wipe out any profits made on renting, careful...
Tax never wipes out profits. Tax is levied at a %.
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Old Apr 8th 2016, 7:01 pm
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Default Re: renting out a UK property

Originally Posted by Bermudashorts View Post
Tax never wipes out profits. Tax is levied at a %.
If the appreciation of the properties capital value is 100k over the time it is rented, and you have other assets appreciating over the tax free limit, and you later sell, you might owe significant cgt.

This may exceed the profit you may make on rental income Thus financially making the exercise loss making. Does that help you?
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Old Apr 8th 2016, 7:24 pm
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Default Re: renting out a UK property

Originally Posted by uk_grenada View Post
If the appreciation of the properties capital value is 100k over the time it is rented, and you have other assets appreciating over the tax free limit, and you later sell, you might owe significant cgt.

This may exceed the profit you may make on rental income Thus financially making the exercise loss making. Does that help you?
It is still profit! And tax is levied as a % of profit. If somebody makes profit on renting and then profit on sale they are still better off for it no mater how much tax is paid.

I don't need any help, I understand perfectly how profits work. Unlike some people that seem to think it is better to make a loss and have a tax deduction tha make a profit and pay tax.
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Old Apr 9th 2016, 12:55 pm
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Default Re: renting out a UK property

Over the last twenty plus years every agent I have dealt with required the written consent to let.
All the mortgage companies state you need consent to let as they will most likely change the mortgage to a buy to let with a higher interest rate plus an admin fee.
The other issue for an agent is that without consent to let any tenancy agreement is worthless and in the event of non payment of rent or other issues they have little recourse.
The worse case scenario is the mortgage is cancelled and the tenants evicted.
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Old Apr 9th 2016, 12:58 pm
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Default Re: renting out a UK property

Originally Posted by ottotheboar View Post
Over the last twenty plus years every agent I have dealt with required the written consent to let.
All the mortgage companies state you need consent to let as they will most likely change the mortgage to a buy to let with a higher interest rate plus an admin fee.
The other issue for an agent is that without consent to let any tenancy agreement is worthless and in the event of non payment of rent or other issues they have little recourse.
The worse case scenario is the mortgage is cancelled and the tenants evicted.

What nonsense. How can landlords mortgage arrangements possibly impact a tenancy agreement?

ETA: And I let via the first letting agent I contacted it and they did not ask for evidence of written consent to let, good job as I didn't have such a thing.

Last edited by Bermudashorts; Apr 9th 2016 at 2:52 pm.
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Old Apr 9th 2016, 1:11 pm
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Default Re: renting out a UK property

Originally Posted by Bermudashorts View Post
What nonsense. How can landlords mortgage arrangements possibly impact a tenancy agreement?
+1. Our letting agent has never asked for any such proof of legality to let.

We have also, unfortunately, been in a situation where our tenants explored legal options. Our insurance covered it and there were never any questions about whether we had consent to let. Tenancy agreement was deemed breeched by the magistrate, who found in our favour. Our mortgage status never came in to it.
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Old Apr 9th 2016, 2:19 pm
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Default Re: renting out a UK property

Originally Posted by Geordie George View Post
+1. Our letting agent has never asked for any such proof of legality to let.

We have also, unfortunately, been in a situation where our tenants explored legal options. Our insurance covered it and there were never any questions about whether we had consent to let. Tenancy agreement was deemed breeched by the magistrate, who found in our favour. Our mortgage status never came in to it.
I had to evict a tenant once too, for non payment of rent and not looking after the property, but mainly non payment of rent. My mortgage arrangements never came into it, nobody asked.
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Old Apr 9th 2016, 9:25 pm
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Default Re: renting out a UK property

Originally Posted by Bermudashorts View Post
What nonsense. How can landlords mortgage arrangements possibly impact a tenancy agreement?

ETA: And I let via the first letting agent I contacted it and they did not ask for evidence of written consent to let, good job as I didn't have such a thing.
If a property with a homeowner mortgage is let without the consent of the lender the tenancy would be based on false information.
Hence the reason most agencies require it.

Last edited by ottotheboar; Apr 9th 2016 at 9:32 pm.
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