Updating post from Reddit.
Hello,
I am about to be a landlord within the coming weeks for my house. It is 95% ready, all certificates sorted and physical condition etc. I am going down so many rabbit holes related to the next process - tax, , self assessment and a separate bank account for rental income - so would really appreciate some advice as I have no one else to ask except my estate agent as I am doing this on my own.
Please excuse if my questions appear obvious or silly.
Context:
- I do not have a mortgage, I own the property outright.
- I am officially still living there.
- It will be managed by an estate agent.
- I have two jobs, one contracted hours the other zero hour contract under Kent County Council.
- Property will be insured through the estate agents.
My questions:
I believe I have to complete a self assessment with HMRC if I am receiving rental income? The property as advised has potential to receive £1700 monthly exc. tax and other fees.
Advice on what bank account to open - I really like the look of Mettle for its benefits such as FreeAgent and tax calculation. But I am not a sole trader which leads to my third question.
Is it worth setting up as a sole trader if I let out a single property? Would it benefit my circumstances or change anything in a negative way?
If I cannot open a Mettle account, will any current account suffice to receive rental income? I have read some people have had issues where the bank sees the income as 'business related' through Starling and Monzo for example.
Should I let the local authority know now that the property will be empty and that I have moved or should I leave this to the estate agents to deal with?
Thank you in advance.
You are not a sole trader as a landlord so don’t register as self employed. Instead you should register with HMRC as a landlord. I’ll answer questions as above but happy to have a further chat (qualified tax adviser here):
Hope this helps
> Any bank account is fine, doesn’t need to be a business account, a current account is fine.
Can you clarify that? I thought banks want you to open a special bank account, sometimes it's known as a sole trader account. Often their TOS say you can't use a current account for business
You're not in business. You're letting a property and receiving investment income .
For the property I own with my wife the rent goes into a joint account we use for all sorts. You just need to account for the income and the costs.
Also you mentioned the insurance is through the estate agent. Make sure you have buildings cover and that they know the property is let
Thank you for your detailed response and advice. I really appreciate it and will follow it accordingly.
Tax is on the entire rental income then you deduct your allowances and very small amount of tax deductible for maintenance and other fees.. Luckily you have no mortgage.
>I am officially still living there. I do not have a mortgage, I own the property outright.
You are highly vulnerable to a type of scam that could see a dodgy tenant sell the property from underneath you. Make sure you sign up for Property Alerts ( https://www.gov.uk/guidance/property-alert )
When you do get a new residence, make sure you update your Land Registry title to that new address. So that the Land Registry can contact you, rather than the sitting tenant.
>Property will be insured through the estate agents.
An Estate Agent won't have the coverage to insure your property. I presume you mean they will get quotes and help you apply to a proper, regulated, and authorised insurer.
>a separate bank account for rental income
It's not a necessity, but it keeps things simple if you have income/expenditure for your rental business in a separate account. You would tell HMRC you are a landlord, not a sole trader.
You may consider transferring the property into an LTD Company for some tax benefits; however, there are tax disadvantages, such as paying SDLT again. So it's often not worth it in the short term.
>Should I let the local authority know now that the property will be empty
I've never known an agency to do this; you should probably do it. You also want to check your insurance to ensure it allows the property to remain vacant for that long.
Thank you for your detailed and response and advice. I really appreciate it and will follow it accordingly.
Hey, i was in the same position as you until i decided to sell my flat this year. No need to set up as a sole trader unless you have another job/side hustel you are not taxed at source on.
You just need to let HMRC know you are now a landlord and do a self assessment every year. I just opened a regular Monzo account and the letting agents paid all my rental income into there, helps to keep everything separate when it comes to tax return/self assessment time.
Good luck.
Form a limited company for tax reasons.
The property would then need to be sold to ltd company at market rate then trigger CGT.
You mean stamp duty?
If you own a property in your personal name and want to move it to limited company it triggers both stamp duty and CGT assuming it has gone up in value since the original purchase.
A bit more about it here:
It’s currently their main residence, so no CGT applies up until now. Either way would be wise to get a valuation at this point so that it’s clear which part of the value increase was whilst it was main residence!
But also less clear than average how much Ltd company helps given they are mortgage free.
When selling to your own company though the CGT relief I don't think applies under HMRC so yeah selling the main residence usually doesn't but to your ltd company it might be different.
You’re correct, which means it almost certainly is unwise to sell to a Ltd company
No different at all. The ltd company is it's own legal entity.
HMRC doesn't consider letting a single property as a business though and if you can't prove it is a business then it is treated as disposal at market value. Since the company is a separate legal entity, the relief doesn't apply. So yes CGT is due. It actually is different then selling it to someone else as normally you don't pay CGT on main property.
Yes you're correct. Hadn't considered the connected party aspect.
Incorporating it will trigger tax so please don’t do this
Incorporating is not good advice for everyone. However, neither is telling people not to incorporate.
It's a case-by-case thing that should be taken under the advice of a Property Tax Specialist, if someone is looking long-term, it can be a better strategy. However, that break-even point after SDLT is often a few years down the road.
There is no mortgage here. There is also one property and not a portfolio.
So although it is case dependent in this case it is a pretty open and shut case. From an expert. But 100% if considering incorporation then get some advice as it’s not black and white.