Rental Income to a Couple

happywarmgun

I own a flat. It has tenants. We receive rent.

The contract from the tenants is with my wife. This is for no more reason than she happened to be in the house when the letting agent rang to say they found a tenant, she did the paperwork, her name is on the contract.

The rent goes into our joint account.

Until a few months ago this mattered not a jot. We were both 40% tax payers, the rent was declared on my wife's tax return and tax paid at full rate accordingly.

However, I have since started my own business and will be taking no income whatever for a year or two. Obviously for the next tax year it makes sense for the rent income to come to me and be accounted for in my tax free allowance.

My question is - do I have to set up a new tenancy agreement in my name? Or is the fact it comes into our joint account (and that I am the legal owner of the flat, not my wife) sufficient for me to just put it down as my income.

I don't want to fall foul of any tax investigation - I do everything I can to stay above board. I equally do not want to go to the expense and hassle of having to draw up new tenancy agreements if I don't need to.

Any advice?

CLAPTON

tax on rental income is due from the person that owns the property as its their income.

happywarmgun

Jimmo.

I have no fear of a tax investigation uncovering anything other than my ignorance that rental income is about the person's name on the deeds and not who is acting as landlord.

My wife and I have a joint 'mortgage' on the property (virgin one account) but my understanding is that when we got married and she got added to that account that did not update the deeds of ownership so I am technically the sole owner not her.

I'm not sure what you are advising at the end by 'sit it out'. Do you mean leave it with my wife and continue to pay the 40%?

happywarmgun

And just as a theoretical aside - if we had a traditional joint mortgage who bares the tax then? Do you chose or do you have to half it between each of you on your returns?

CLAPTON

I'm a bit surprised that the mortgage company would agree to a joint mortgage without joint ownership of the property.

I would suggest you check out the ownership issue with the land registry to see exactly what it says.

The fact that the mortgage is joint would imply joint ownership.
Jimmo would be better placed to give a view but I would think you can reasonably argue that the beneficial ownership is joint.

If its jointly owned then you need to split the income equally between you and pay tax accordingly.

happywarmgun

Clapton:

We have a virgin one mortgage which is essentially a huge overdraft facility up to about 50% of the value of the flat. If I remember correctly when we got married virgin were happy to add my new wife to the 'account' (i.e. she was jointly liable for the debt but also had joint control of the available facility) but the flat was still in my name as far as Virgin were concerned (they wanted some big administration fee to make that change which I said no to). I can't remember it all exactly but it is something like that.

We're one of those group of people who ended up 'accidental' landlords -kiddie came along, moved into bigger house (rented) - put flat on market - market collapsed - flat spent a year empty unsold - decided to rent out. Thought we had done everything above board - but now it looks like we've caught ourselves out.

CLAPTON

the virgin one mortgage is a sort of offset a/c into which you both pay your salary?

the only thing that seems certain is that your wife is not the sole owner of the property.
I'm afraid its a little outside my competence to know whether the HMRC will view it as solely yours or 50-50 with your wife.

happywarmgun

CLAPTON: That's right. We both pay our salary into it and it is sort of an offset a/c.

Am I best off just ringing HRMC and putting my cards on the table (this being an adminstrative error which has resulted in no loss to the Revenue) - or do you think I should go to an accountant first and get them to make contact? I don't know how brutal HRMC are at picking off low hanging fruit like people in my circumstances...

I do get the feeling from what you are both saying that this is going to end up costing me