Property & tax questions

foolishboy

Morning all,

A handful of tax/property related questions if I may, on behalf of the missus:

Currently she owns the property we live in, and a flat that is rented out. Both are in her name alone.

1) If she were to move the mortgage on the rented property to interest only to free up some cash each month she would then be clearing a £200ish profit, currently the rent almost exactly covers the mortgage on that property. I'm assuming that she'd then be liable to pay tax on that £200? If that's the case she'd need to complete a tax return but the bulk of her taxes would still be taken PAYE, just he extra she'd need to do the paperwork for, that sound right?

2) Same as above but she quits work to have a family, so therefore no longer with an income. Does this £200pcm then become tax free as within the tax free allowance?

3) Again, talking about the 2nd property, what are the CGT liabilities for this property while she's working and once she's quit? I'm assuming full tax while she works, and anything over tax free threshold once she's not.

Thanks so much for the help in advance, tax is an area I've never had to think about!

Cheers,
FB

00ec25

1. it sounds like she is currently on a repayment mortgage and therefore her current understanding of her profit is incorrect as you say that the rent just covers the mortgage at the moment, it does not, she is alreay incurring a taxable income if it is a repayment mortgage because only the interest element of a mortage is an eligible cost to offset against rental income. Sge cannot claim the full mortage payment if it is a repayment mortgage.
Has she claimed all the other eligibile costs, eg gas certifciates, agency fees etc?

She must already have informed HMRC that she has property related income irrespectiove of whether is in in profit or loss. Strictly speaking she should do an SA return and let HMRC decide if they will require her to do it every year or if they will simply accept a letetr declaring earnings instead

2. correct if her tax code is the standard 647 then she can earn £6,475 tax free each year

3. CGT does not depend on whether she is working or not, it is a capital tax not an income related tax. She gets her CGT allowance for the year in which she sells the property. If she has previously lived in the falt as her own main residence (before she met you?) then she could also claim letting relief - see here

zygurat789

00ec25 wrote: »

2. correct if her tax code is the standard 647 then she can earn £6,475 tax free each year

3. CGT does not depend on whether she is working or not, it is a capital tax not an income related tax. She gets her CGT allowance for the year in which she sells the property. If she has previously lived in the falt as her own main residence (before she met you?) then she could also claim letting relief - see here

2 However this will affect any tax credit claim.
3 This may change very soon if what we hear is anywhere near accurate

foolishboy

Thanks everybody ... sounds like we need to sit down and get our taxes straight before we do anything else, CGT tax / letting relief info was particularly useful.

Cheers!
FB