Tax situation re incapacity benefit and rental income

ChrisChris_2

Hi,
Am trying to minimise tax.
My wife is on long term Incapacity Benefit which is about £4750 a year and is taxable. She doesn’t currently to tax return because she hasn’t before had other taxable income.
She has recently started receiving rental income from a new second property worth about £5000 after allowable expenses have been deducted off the total rental income (so £5000 is the taxable amount).
So presumably in this scenario she would have to pay tax since total taxable income is about £9700 and her personal allowance is £6475, so she would be paying tax at (20% presumably) on £3200 = £640.
So what I was wondering is this:
According to hmrc website my wife would only need to do a self assessment if:
“Income above a certain level from savings, investment or property

If you don't already complete a tax return, you'll need to do so if you receive any of the following:

• income from savings and investments of £10,000 or more
• income from untaxed savings and investments of £2,500 or more
• income from property (before deducting allowable expenses) of £10,000 or more
• income from property (after deducting allowable expenses) of £2,500 or more”

[FONT=&quot]So my question is, if my wife's property income was less than £2500 (e.g. if we put the second property into joint ownership so the income was split 50/50), then would she not need to do tax return, even if total income was still above the personal allowance? Do you see what I mean? Her new total income would be £4750 (Incapacity Benefit) plus £2500 (half of the rental income) = £7250, which is more than the personal allowance, but she doesn't have to do tax return since her rental income is less than £2500. See what I mean?
Cheers in advance,
Chris[/FONT]

jennifernil

I see what you mean, but you would both still need to inform HMRC of this source of income. You would need to write to them and declare it.

Doing a return is not that difficult.

chrismac1

You have until 5 October 2011 to disclose a new source of rental income which started during the 2010-11 tax year. If you leave it later than that, penalties could apply depending on whether any tax is due.