Property tax - advice please

nick85_2

Hi,

Not really sure about what to do here, I hope someone can help.

About 6 or 7 years ago we bought a 2nd house as an investment. But our main house has always been our official residence. We were told as a married couple we could only have one official residence, something to do with CGT I think. Things like bills and council tax were in my name for the first year or so of owning the 2nd property whilst we slowly renovated it.

After that, various people including myself have lived in the house on and off. Things like bills and council tax have been in various different names. We have had friends of friends stying there, such as a friend's husband ( she threw him out) and a friend with nowhere else to go who was ill. So really we have had nothing official in terms of rent, although most people did bits on the house as payment in kind.

Now we are thinking we would like to make some proper money on it by putting it with a lettings agency and getting a regular income from it. But someone has told me that we would probably have to prove we have not been getting rent all these years on it. I can see why it would look suspicious, especially as we don't have bills etc in our names. But I don't see how it can be proved. I scared that if we start renting it and fill in the income on my tax return form they will start some sort of investigation and if they don't believe us we will get some massive bill as tax for income we never even had!

can anyone advise please? I know we kinda been naiive , just didn't think at that point we would ever be wanting to rent it to make money, but right now we need the extra income.

poppysarah

Were you getting rent for it?

If you can show you weren't they you will be ok But HMRC can assume your income at a level until you prove otherwise.

I'd get it declared now.

00ec25

CGT
You are correct that the 2nd property is liable to CGT
1.despite your intermittent personal “use” of the property so far, it is liable for CGT for the entire period to date that you have owned it, as a married couple your main residence cannot be split into “his” and “hers” properties.
2.If you rent it out, that liability will continue and you cannot claim “lettings relief” as it has never previously been your main residence. Further discussion of CGT should be left to another thread

Income tax
What you seem to be saying is that various people have used the property in the past and have not paid you cash money in “rent” for their time there. Instead, some (or all) of those people have made contributions “in kind” in exchange for using it which seem to be:
Either: Transferring bills from your name direct into their name. eg: utilities and council tax whilst they lived there.
Or: Paying for materials for and/or the work done on the property

The simple rule is would you have had to pay these bills yourself if someone else had not done so on your behalf. Clearly the answer is yes, (but not always for the total amount paid, eg: utility bills would be lower cost because you would not live there). Therefore those payments represent cash money savings for you and so are taxable benefits.
So you are correct to be concerned, but even in these dire economic times, I doubt HRMC would be that interested in backtracking your use of the house over 7 years, after all plenty of people have 2nd homes which are not let out and investigating all of them would be too much.
If HMRC did review then you can show no money went through your bank statements (you have kept them haven’t you?) so the worst that could happen is a few £ in tax on the bills paid by the other people

nick85_2

Thanks 00ec25, I think I follow you. So I could do as planned and put it up for rent with a rental agency, and presumably the next time I do a tax return, fill in whatever rent we have received. I know some things can be deducted for so I would need to read up on that.

Yes, we have bank statements, although not going back all the way, but probably the last year or two, so can show that no rental income has been going in. That's the only evidence I could show though.

Should I say different people have used the house, or better to just fill in the tax return and that's all, unless they come and ask? I suppose they will ask what the house was used for for the first few years? Presumably if we sold it (the alternative way to earn some cash), we would face the same questions?

The previous questions:

Were you getting rent for it?

as stated, not cash. One guy fitted a couple of windows free of charge, another painted the whole of the inside, that sort of thing.

If you can show you weren't they you will be ok But HMRC can assume your income at a level until you prove otherwise.

as stated, the whole problem is that I CAN'T prove it! That's why I'm worried, if they assume rent we haven't been getting.


I'd get it declared now.

Um....not really sure what I'm declaring? Can we declaire a zero income?

taxsaver

Just start to let it out now and when you come to complete your tax return for the 2011/12 tax year (so not for some time yet) then you simply declare the income that you have received (after netting off your allowable costs) and no more. As soon as you get a tenant though you should advise HMRC that you will need to submit a tax return for the current fiscal year otherwise they will not know to send you one.

Do not worry unduly about the period that you did not let it out for, it's highly improbable that you will ever be questioned about it, but if you are then you simply tell the truth and even if they did decide to count some of the benefits in kind that you have received as income they will be more than off-set by other expenses which you have suffered so you will have no tax to pay and indeed could even have losses to carry forward against the rental income that you are about to get.... as I say.... it's very unlikely that they will start down THAT road!