Advice on Tax on rental income

helptheden

Hi,
I am hoping that someone may be able to provide some advice on paying tax on rental income.


I have a joint mortgage with my wife on our property, I also own a second property outright (no mortgage) in which a relative lived in rent free. My relative passed away earlier this year.

I am currently refurbishing this property and intend to rent it to a local housing association on a long lease. I am not sure what to do for tax purposes. I currently pay 40%tax, therefore, I was wondering if it is possible/legal for the rent to be paid to my wife who is currently on the lower tax rate who will shortly be leaving work on maternity leave and then hopefully will give up work. Therefore, I hope that her tax allowance could be used for some of the rental income.


In order to do this, would I have to change the property to either joint names or would it have to be changed over to her name? Is it just a case of doing this via Land registry or do I need to get a solicitor to change the property over? I am also unsure as to what possible impacts this could have in the future if/when we decide to sell the property. Any advice would be appreciated.


Thanks in advance

ceeforcat

1) Was the house occupied by a dependant relative and purchased before 5 April 1988? If so. it would be exempt from CGT. Not your question but just a thought you may not have considered.

Your wife cannot be taxable on the rental income until she herself owns the property in some capacity. You can try to persuade HMRC that she has a different interest in the property from her interest in the income from the property by completing a form 17. I have never advised this - you are clearly seeking to minimise tax as your motive and the argument will not hold sway.

A solicitor is required - your wife would be deemed to have acquired the house at the price and date that were relevant to you.

helptheden

Thanks for the reply. The house was purchased after 1988 i'm affraid.

I was hoping that i would simply be able to either hand the property over to my wife or put it in joint ownership via land registry to reduce the tax payable on the rental income.

With regards to CGT, the situation is complicated as the property is an ex council house, which was bought by a relative. The property was then changed into my name a number of years ago (therefore I did not acquire the property for a specific price). I understand that I would have to establish the average price of properties at the time the property was changed over to my name to work out how much capital gains tax I would have to pay in the event that I sell the property. Does your comment mean that the same would apply if I changed it over to my wife or put it in joint names ie acquired the house at the average price and date that were relevant to me or would it be the average price of the property now? I understand that there are CGT benefits in putting the property in joint names as we will be able to use two allowances if/when we decide to sell.

If the property is in joint names, can the rental income (and tax) go to my wife (who will not have another income)?

Thanks

Luke

ceeforcat

1) Average price has nothing to do with it – you need to obtain a formal valuation of the house at the time when it was ‘transferred to you’. The fact that no money changed hands is also irrelevant.

2) If you transferred it to your wife she will be deemed to have acquired it at the time it was transferred to you in 1) above.

3) If the property was transferred to your joint names, each half would have been deemed to have been purchased at the date in 1) above. You need to be specific as inheritance tax complications arise. Please ask your solicitor to explain the difference between owning the property as joint tenants or tenants-in-common if you do not know this

4) If you are going to sell the property ensure that a ‘reasonable period of time’ exists between the transfer and sale (at least a year). If HMRC suspect that the transfer is made simply to avoid pending CGT it will be disregarded.

5) As before, if the property is jointly owned, the income is jointly owned. You both need to declare half of the income on your tax returns.