Am I liable for tax...??

In_for_a_penny

Hello,

Hopefully some kind, knowledgeable person will be able to advise me on a situation I have pondered over for some time.

My wife and I own our property outright. I have a full time job and pay income tax via the PAYE scheme. I do not pay tax at the higher rate of 40%.

I also have another house which I have a mortgage on, where my mum lives. My mum gives me a token amount monthly to 'help' with the payments towards the mortgage etc. (which is cheaper than her living in council rented property or privately rented property) but it by no means covers all my outgoings relating to the property i.e. mortgage payments, buildings insurance, maintenance and mortgage term assurance.

My question is, am I liable for income tax on this payment?

Thank you.

IWantToBeFree_2

It is rental income, so you would be liable to tax on it, however, you can offset the interest on the mortgage and the maintenance etc, in normal circumstances this would probably create a loss, however, as you are renting to a connected person, HMRC would seek to tax you on the open market value of the rent, regardless of what you actually receive.

Mutton_Geoff

If you have another house that is producing an income, then you need to pay tax on it subject to certain costs (eg mortgage interest, operating expenses) being offset.

You need to fill in a tax return to declare this additional income but it sounds most likely there will be no additional tax to pay if the costs exceed the income. You can't not declare it on this basis alone though.

Dualcyclone

I'm sure I read one of Martin's guides that say you can recieve up to £3000 odd a year in rent without having to pay tax. Anything over that and you're liaible.

littlemissmoney

Dualcyclone wrote: »

I'm sure I read one of Martin's guides that say you can recieve up to £3000 odd a year in rent without having to pay tax. Anything over that and you're liaible.

I think you are talking about the rent a room scheme where you rent a room in your house to a lodger. This doesn't apply to rental income from a tenant living in a rental property.

Trying_to_be_good

You will also need to consider Capital Gains Tax liability when you come to sell the house in which you don't live.

I'd give HMRC a call and see what they say - not sure they would try to tax you on open market rent as you could always just leave the place empty with no-one living in it, but you definitely wouldn't be able to create a loss (but you didn't ask about that anyway!).

IWantToBeFree_2

I am pretty sure that it would be on an open market rent due to the connected party rules.

silvercar

If the revenue were going to force you to pay tax as if it was the market rent received, your option would be to not receive any rent. There is no obligation to rent out a property you own and you can certainly allow family to live in your home rent free.

I think people may be confusing rent with sale price. If you sell a property to a related party the transaction is deemed to have taken place at market value for CGT calculations.

prudryden

Document that the funds you receive from your Mother is not rent as such, but a donation, if you like, to reimburse some of your expenses for allowing her to stay rent free. But, as always, confirm this with your accountant.

GDB2222

IWantToBeFree wrote: »

I am pretty sure that it would be on an open market rent due to the connected party rules.

Which connected party rules? Where? Some sort of reference, please.

silvercar

GDB2222 wrote: »

Which connected party rules? Where? Some sort of reference, please.

Here:

http://www.hmrc.gov.uk/budget2005/revbn23.htm

but it relates to the sale of assets rather than income. It would apply to the CGT liability on the sale of a property not on income tax on rental income.