Tax Self Assessment

pramsay13

Every year my wife and I have to complete a self assessment as we have income from renting out the two properties we owned before buying our family home. One property is in my name and the other is in my wife's name although all of our finances are combined.
I have been made redundant and probably won't work for a few months, so can I put both properties on my self assessment this year as I will have more scope for earning before tax, or is that fraud?

jimmo

In principle, yes you could transfer your wife’s property to you but that will potentially play havoc with any Capital Gains Tax relief she would be entitled to when her previous home is sold.
You really need to take some time considering that and, perhaps, how much detail you are prepared to share.

BoGoF

In answer to your question, no you can't.

You must declare the income from the property in your name and your wife likewise. You will need to change the legal ownership of the properties before you can do as suggested by you.

tonytsdiver

Have you thought about becoming an MP ?

pramsay13

BoGoF wrote: »

In answer to your question, no you can't.

You must declare the income from the property in your name and your wife likewise. You will need to change the legal ownership of the properties before you can do as suggested by you.

Okay so if we did it properly and change the legal ownership etc, will it save us on tax assuming I'm not working for 6 months.
And what are the implications for capital gains tax that Jimmo is referring to. We've lived in our current house since 2006, I've owned my flat since 2000, my wife since 2003.
We're unlikely to do anything with the properties until the mortgage is paid off in 20 or so years.

dlk

pramsay13 wrote: »

Okay so if we did it properly and change the legal ownership etc, will it save us on tax assuming I'm not working for 6 months.

If it's only 6 months that you expect to be out of work there's nothing really to gain from this as during the rest of the year you'll probably utilise your personal allowance. Unless during the tax year you are going to earn less than your personal allowance then you'll still have to pay tax on the profits on the properties.

BoGoF

This is not a decision to be taken lightly and certainly not to save a few quid tax for one year and as dlk says will you actually gain anything?

Any potential savings could be swallowed up in legal costs and that is not something that you should be doing DIY as it could come back to bite you

jimmo

pramsay13 wrote: »

what are the implications for capital gains tax that Jimmo is referring to.

When you wife sells her flat she will be potentially liable to Capital Gains Tax on any profit (sale price less purchase price and the costs of buying and selling.
Assuming she lived in the flat as her home for 3 years to 2006 she will be entitled relief in respect of the 3 years of occupation and the final 3 years of ownership. In addition to that she will be entitled to lettings relief subject to a maximum of £40,000.
Whilst you haven't given any figures it seems very likely that if she sold it now there would be no Capital Gains Tax to pay.
Details are here.
http://www.hmrc.gov.uk/helpsheets/hs283.pdf
On the other hand if she transfers her flat to you that will be deemed to be a transaction which takes place at no gain, no loss.
http://www.hmrc.gov.uk/manuals/cgmanual/CG22200.htm
In other words she will be regarded as having sold it to you for what she paid for it and the relief outlined above will be of no use to her.
When and if you sell the flat you will be chargeable on the whole gain and, never having lived there will not be entitled to main residence relief nor lettings relief.
You are in a similar position to your wife in respect of your own flat but as you seem to have lived there for 6 years the fractions will be rather different.
Quite frankly, if all this is news to you, and you have a mortgage or mortgages outstanding I find it hard to envisage you really understanding what interest may be allowable in your and your wife's letting businesses.
Some posters on this forum who claim to be accountants get it wrong. In my own case, I claim to be a retired Inspector of Taxes and used to get it wrong until other posters pointed out that things had changed since my days on this particular aspect.

heretolearn_2

Also your mortgage lender is unlikely to allow you to just transfer ownership.