Advice for letting home

MetManMark

Hi all

Forgive me for what is probably straightforward for seasoned readers...
My wife is in the process of buying a house that will be our family home - this will be in her name only as the property in which we currently live is in my name only. We intend to let my existing house when we move.

Q1) Will I will need to pay tax on any rental income generated from letting the property?

Q2) If I do need to pay tax on the rental income presumably I will be able to offset the rental income against expenses (including the "interest" portion of the mortgage).

Q3) My wife earns less than me (whereas with the rental income I would be a higher tax rate payer). Would it be possible for the rental income to be paid into her account and for her to pay the tax?

Q4) We are expecting a baby in a couple of months. Could we have the rental income paid into the baby's account and therefor not have any tax to pay on rental income?

We hope to rent the property for some time so want to be smart about this - but want to make sure we do it properly.

Cheers
Mark

Elaine_Wilson

Q1. Yes, this will be taxable income subject to your Q2.

Q2. Yes.

Q3. I think she would have to have the beneficial interest in the property, so you would have to make an unconditional gift of it to her to achieve this.

Q4. Getting beyond my knowledge but I doubt it. I'm not sure if a minor can actually own property in any case so it seems you would need some sort of bare trust. But even with this the income would be treated as yours as you gifted the asset to the minor.

MetManMark

Hi

Thanks for your reply. You mention that my wife would have to have "beneficial interest in the property". What exactly do you mean by this? As we are married we both have beneficial interest in each others properties! We wanted to each have a property in our names (rather than having them in joint names) as we thought this would get us round having to pay CGT should we come to sell one of them.

Is there some other, smart way in which we could arrange our affairs that could help reduce our tax burden? We aren't super rich but are aware than there are cunning things that folks do to reduce their tax payments.

Cheers
Mark

BoGoF

If you are letting your former home and it is in your name only then you have to declare any income from it. To deviate from this you will have to legally change the ownership of the property to either 50:50 or 100% to her.....of course this could have repurcussions should you seperate !!

It all comes down to how much tax you're talking about for it to be worth the effort.

BoGoF

In answer to your question 4......it is academic who's account any rent it's paid into so that's a non starter.

MetManMark

Fair enough. Just thought I would ask!
Mark

jimmo

If you want to be smart about all this you would probably be better advised to get some professional advice. Speaking as a former Inspector of Taxes I invariably found that I could give much better advice after a 15 or 20 minute chat with somebody who trusted me than I could give in response to a letter or a series of exchanged letters.
Some people find it difficult to trust the taxman and you may be more comfortable with professional advice and, from this forum, I understand you can often get a 30 minute initial consultation for free.
From a tax point of view you have 2 things to consider, Income Tax and Capital Gains Tax.
As you are planning to let your current home in the long term the Income Tax angle seems to be that it would be better for your current home to be transferred to your wife so that the rental profits are all hers.
From the Capital Gains Tax point of view it is virtually essential that any transfer of ownership of your current home takes place whilst it is still your current home.
My reason for saying that is that you are currently building up Capital Gains Tax relief on your main residence and if you transfer the house to your wife now you can transfer the relief that you have been building to your wife.
http://www.hmrc.gov.uk/manuals/cgmanual/CG64950.htm
If you were to transfer ownership after you had moved out the relief you have built up will be lost because you will be deemed to sell the property to your wife for what you bought it for but she will never have lived in it during her period of ownership.
http://www.hmrc.gov.uk/manuals/cgmanual/CG22200.htm
You also have to consider how your lenders will view this.
If your current home is transferred to your wife will the current mortgage lenders transfer your current mortgage to your wife and how much will it cost?
How far have you gone down the route to getting a mortgage on your proposed new home?
Will the mortgage lenders still be prepared to give your wife a mortgage when they learn that she has taken on your existing mortgage?
Do you have time to free yourself of your current mortgage and successfully apply for a mortgage for your intended new home in your name only or perhaps jointly with your wife?
Those are questions that a taxman couldn’t answer but may give you food for thought.