Tax on rental income

RandyBender

Hello,

Me and my partner are in a situation where we're going to need to rent our current property out for approx 2 years. We're not 'buy-to-let' investors & I know they're not to popular around here!

She is a non-tax payer. I am a higher rate tax payer.

Would we be better off remortgaging (we're going to do this anyway as our current SVR is very high) and going tenants in common 50/50 ownership?
Then when we rent it out only my 50% of the rental income would be taxable, if I understand it correctly.
If we had joint ownership would we have to pay 40% tax (my rate) on 100% of the rental income, again, if I understand it correctly.

Is there anyway we can use here non-tax paying status to avoid paying 40% on this new income?

Thanks for reading.

stick2000

If joint ownership then regardless of whose bank account the money goes to HMR&C presume 50/50 so you would both have to declare 50% of the income/expenditure on self assessment tax returns - unless you advise HMR&C otherwise.

You could consider transferring property into your partner's sole name, the income would then be taxed at lower rate after annual allowance.

I recommend that you obtain advice from a qualified accountant.

dazza.mk

You really need to look into what profit you are likely to be making from the property before you make any big decisions (bearing in mind the possible deductions for maintenance expenses / mortgage interest [not capita])

ManicMum

I have a BTL property and we pay next to nothing in tax. Depends on how much rent you get versus your mortgage. You can offset all the interest on the loan, insurances, maintenance, gas checks etc. I am a non-tax payer so pay nothing on my rent and my hubby pays a bit but not much. Mind you, with rates falling, we will have to pay more next year.

Would your partner be able to get a new mortgage solely in their name? especially if non-tax payer and I am presuming not working? Might be a bit iffy.

Kynthia

Hi

I've been told that when two people own a property they can decide on the ratio of income that each of them declares (including 0%/100%). However if they are married they must declare 50% each and I don't think it matters if only one spouse is on the deed/mortgage.

You really need to check this with your tax office as it's very important. Give them a ring.

I've not made a taxable profit yet as once you deduct all the allowable expenses it's very possible to make a loss. Things such as morgage interest, letting agent fees, service charges/ground rent, 10% wear & tear (if furnished instead of replacement costs), insurance, repairs, etc.

Cook_County

Kynthia wrote: »

Hi

I've been told that when two people own a property they can decide on the ratio of income that each of them declares (including 0%/100%). However if they are married they must declare 50% each and I don't think it matters if only one spouse is on the deed/mortgage.

You really need to check this with your tax office as it's very important. Give them a ring.

I've not made a taxable profit yet as once you deduct all the allowable expenses it's very possible to make a loss. Things such as morgage interest, letting agent fees, service charges/ground rent, 10% wear & tear (if furnished instead of replacement costs), insurance, repairs, etc.

Sorry, I may be dull but why run a business to make a loss? In the OP's cas mortgage interest is a red herring these days because rates are close to zero.

We need to know how owned (ie joint tenants or tenants in common) and the actual beneficial interests.

ManicMum

Cook_County wrote: »

Sorry, I may be dull but why run a business to make a loss? In the OP's cas mortgage interest is a red herring these days because rates are close to zero.

We need to know how owned (ie joint tenants or tenants in common) and the actual beneficial interests.

Rates may be close to zero but unless you are on a tracker, you will not be paying anything like zero. My BTL is about 5%.

The idea for many was to get capital appreciation but obviously that has gone down the toilet. I don't pay any tax because I use my tax free allowance to offset what i owe as i am a non tax payer. For most, they can't sell their property so just hanging in there til they can or until the prices rise again.

Kynthia

Cook_County wrote: »

Sorry, I may be dull but why run a business to make a loss?

I wasn't really intending to run a business. I just wanted a home to return to if moving in with my boyfriend didn't work out.

There are many different reasons why people become a landlord and although I'm not making a profit, we're better off financially than before. :beer:

ceeforcat

Kynthia wrote: »

Hi

I've been told that when two people own a property they can decide on the ratio of income that each of them declares (including 0%/100%). However if they are married they must declare 50% each and I don't think it matters if only one spouse is on the deed/mortgage.

I am sorry - this simply is not correct. A person, married or not, cannot have a different interest in the income from an asset as opposed to his interest in the asset. There is a Revenue form 17 where you can actually attempt this but it is open to high scrutiny. In short if a man owns an asset 100%, he must declare all of the income - if owned 50-50 with his wife - each must declare their share only.

Kynthia

ceeforcat wrote: »

I am sorry - this simply is not correct. A person, married or not, cannot have a different interest in the income from an asset as opposed to his interest in the asset. There is a Revenue form 17 where you can actually attempt this but it is open to high scrutiny. In short if a man owns an asset 100%, he must declare all of the income - if owned 50-50 with his wife - each must declare their share only.

Do you know this for sure? I've looked at Form 17 and it is for married couples/civil partners only.

What if someone owns a minority percentage, confirmed with a Deed of Trust, and does not receive any of the rental income (like a silent partner)? The majority owner (non spouse) declares all of the rental income to the HMRC.

ceeforcat

Sorry - maybe if I read the post correctly, I would be more accurate in my response. Have you considered formaing a partnership? Have a look at the relevant section in this article.

http://www.taxcafe.co.uk/articles/letsgettogether.html