property letting/ tax implications

emurphy

My husband and I married 6 months ago, 6 months prior to that he moved into rented accmmodaton with me and rented out his own property 8 months ago. The rental income from the property covers the mortgages payments but does not make us any profit.
We plan to buy together in the future and I am keen to sell his previous home but understand their are tax implications invovled. My question is two fold in that although the rental of flat does not make any profit should it currently be registered as a source of unearned income ? and if we sell, again probably not at a profit, would we be liable for capital gains tax (he has owned it for 3yrs) and if so how could we minimise this ?

00ec25

1. from the date it ceased to be his main (or only) home/residence then he has 36 months in which to sell it and remain 100% exempt from CGT - so given your info he is 8/36 into the exempt period


2, if you have unearned income from property letting it must always be declared whether you make a profit or not. Given your info it is probable you are not making a taxable profit but even so it must still be declared, remember only the interest element of the mortgage is tax deductable, not the whole amount, that said there will be other costs which are tax deductable (eg EPC and gas certificate) and will probably more than equal the total rental income meaning you will not pay any tax (and could even be making a tax loss)

chrismac1

Agree with the last post in full. You have until October 2011 to declare this source of income. If the property is not sold in the 36 month period, you'll be partially exempt from CGT as there is something called letting relief you can claim. Depending on the size of the gain there may be no tax to pay even if you hang on to this property for some time - but once the 36 months is up getting professional advice is money well spent if the potential size of the gain - market value less original cost less allowable fees and improvement costs - is a big one. Everyone currently gets 10,100 free allowance for CGT. If you want more details PM me.

jimmo

If your husband already completes annual Self Assessment returns then he does have to declare the letting income in his returns.
If he does not complete annual returns and he is sure that there is no taxable profit there is no need to notify HMRC.
http://www.hmrc.gov.uk/manuals/emmanual/EM4551.htm
However if he is making losses it is normally good practice to claim those losses in order to be able to set them against any future lettings profits.
There is currently a 4 year time for claiming such losses and they can be claimed outside a return.
If the flat is to be sold within 3 years of him moving out there may be no need to advise HMRC of anything but he really must retain sufficient records to show HMRC, just in case.
However, as indicated in the post #2 above, the biggest mistake people make is to assume the whole of the mortgage payments are deductible when only the interest is.