The tax implications for accidental landlords.
Sometimes life takes you in unexpected directions.
Maybe you've inherited a property much sooner than you'd anticipated, or your job is forcing a relocation but your home just won't sell. Like many homeowners, you might find yourself becoming an ‘accidental landlord’: letting out a property when you didn’t 'buy to let'.
While it’s a great way to cover your mortgage payments – particularly important if you’ve got a mortgage on another house or are having to pay rent – it does come with some implications, namely tax.
Do accidental landlords have to declare rental income?
You do – you’ll need to complete Self Assessment through HMRC every year, even if you pay tax through PAYE for your day job. If the taxman discovers you’ve been renting your house out and not paying tax on the income, you could face a hefty fine or even a criminal conviction.
What tax do I need to pay as an ‘accidental landlord’?
Can I claim tax back against anything as an accidental landlord?
What happens if I later sell my house?
Any property that’s been rented out is subject to Capital Gains Tax (CGT), the profit you’ve made on a capital asset. Since April 2019, you’ve be expected to pay this within 30 days of selling the property.
If the property you're renting out was once your main residence, you won't pay Capital Gains Tax on the total increase; instead, a calculation is made based on how long you lived in it, plus an additional 9 months.
The calculation works on the assumption that the increase in value has been steady throughout your ownership, as you may (understandably) not have had a valuation on your property at the point when you began renting it out.
When do I have to declare my rental income for tax purposes?
At the moment, tax returns need to be completed once a year – by January 31st, to cover the financial year up to April of the previous year.
The Government's Making Tax Digital scheme may eventually require those using Self Assessment to declare their income digitally every quarter, so you can keep tabs on how much tax you might owe (rather than finding yourself with an unexpected bill at the end of the year). At the time of writing, this scheme is being piloted.
Lending decisions are subject to an affordability/creditworthiness assessment.
Any property used as security, including your home, may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.