Do I need to change mortgages if I want to let out my flat?

Q I bought a flat using a repayment mortgage over two years ago. I now wish to let it out - do I have to have a buy-to-let mortgage for this? Also, does renting affect my tax classification, and must the Inland Revenue be informed if I rent my property?

MP

A You generally have to switch to a buy-to-let mortgage if you want to rent out your property. Rental properties represent a higher risk to lenders as tenants are assumed to be less likely to keep the property in good condition, because they do not have a financial stake in the home. That's why buy-to-let mortgages ask for higher deposits than residential loans - the minimum deposit on a buy-to-let mortgage is 15%, though most lenders will require 20% down.
Plenty of people don't inform their lender when they rent out a property, but that puts you in breach of your mortgage agreement so your lender could take action against you.

Rental income has to be declared to the Inland Revenue annually on a tax return. If you don't normally fill in a tax return you will have to request one from your tax office, and it is your responsibility to make sure you get one in time to complete and return it. If you want the Revenue to calculate the tax you owe, you need to complete your tax return by September 30 following the end of the tax year. If you plan to calculate your own tax you have until January 31 the following year.

Whether your tax code will change depends on what tax bracket you are currently in and how much rental income, minus certain allowable expenses (such as mortgage interest), your rental property generates.

However, if you are renting out your property because you are going abroad to work or travel, for example, you can register as a non-resident landlord with the Revenue, and will then be able to receive the rental income without paying income tax. You might still be liable to pay tax on the money wherever you're living, though.

The taxation of rental property can be complicated and I'd advise you to have a look at the relevant section on the Inland Revenue's own website before you proceed.