tax on rental income

prudryden

taxsaver wrote: »

I never say never, but it's pretty unlikely and if it were to be possible would need some pretty well drawn up trust deeds I'd say and even then HMRC might need quite a bit of convincing that it isn't simply a contrivance.

Would your assessment change to any extent if the joint parties were married and filing separate returns?

phlash

begbeer wrote: »

Have been renting it out since 2006, reason being we bought the house my mother was renting as farmer needed the money after telling her it was hers for life, got an enormous mortgage to do so and we are slowly paying it off. she pays us the same rent she was paying the farmer but we have been subsidiing it up to now. with our fixed rate now up we are as I said going to make a profit, have some losses to carry forward so not to much this year. We already do self assesement forms each year, but what I wanted to know is when I pay the extra tax, seems like it will be in January 2013, is this correct. as we are talking about 2011/12 tax year.

Just to check here:

By profit, do you mean cash spare after deduction of the mortgage costs (including capital repayment element), if so, you may be mistaken.

Taxable profit is rent after deducting allowable expenses, one of which is the interest on the mortgage repayments, but not the capital repayment element.

phlash

prudryden wrote: »

Taxsaver: If the property is in a single name, but the tenants pay the rental income by standing order into a joint bank account, can the rental income be allocated to the joint parties 50/50?

No. The economic rights to the rental income belong to the sole owner.

For this to work:

1) You need to be joint owners
2) You need a Deed of Trust in place to nominate the economic share of the property
3) File Form 17 with HMRC to tell them the share from 2).

phlash

prudryden wrote: »

Would your assessment change to any extent if the joint parties were married and filing separate returns?

No wouldn't change, ownership is still in sole name.

begbeer

Phlash
We have an interest only mortgage so it is the difference in that and other expenses against rent received

theartfullodger

If you've been letting out for some years but making a loss (did I understand correctly?? If not apologies..) you've made at least two errors.....
a) Making a loss (oh, OK, I make a loss some years..)
b) Not declaring the tax return to HMRC thereby building up large paper-losses that you can later use to not pay tax when you are making a profit... (property income only..)

Suggest calling HMRC, grovelling, explaining you really really really didn't realise you needed to do a return, "not sure" what profit or not you've made & can you have tax return forms for ALL those years.

You'll naturally include ALL bank accounts, building soc accnts, eBay, car boot sales etc as any decent patriotic Brit would..

Cheers!

Artful

begbeer

Can assure everyone that it is all above board, we employ an accountant who does our self assesement forms each year and includes all comings and goings as regards our rented property, if you read my first post you will see that we purchased this house so my mother of then 77 would not be homeless after being promised the house for life. We have up to now being subsidising it but with our fixed rate finished our interest only mortgage payments will be less than the rent she pays us (the same rate she paid to the farmer)

begbeer

sorry not first post further down the list!!!

phlash

begbeer

There are some various different points now contained in this thread, but I'll outline what I would do given what I think your situation is: Joint owners of property with spouse, that had made losses declared 50:50 on tax returns by your accountant and will now start to make a profit. (The below assumes one of you is a lower rate taxpayer).

Allow [x] amount of time from 6 April 2011 until [y] date in order that the higher rate taxpayer's 50% share of profits equals the accumulated losses reported up until 5 April 2011 on the higher rate taxpayer's tax return. On [y] date, get a Deed of Trust to deem the property ownership as 99:1 from 50:50 in favour of the lower rate taxpayer. Send in Form 17 to HMRC on date [y]. From date [y] declare 99% of profit on the lower rate taxpayer.

A reverse calculation and swap to [R]%:% ratio split using an interspousal transfer can be carried out just prior to selling the property to ensure capital gains are soaked up by any capital losses that each individual has and their capital gains allowance, with any excess gain falling on the lower rate taxpayer.

Best of luck.

begbeer

Hi Phlash
Good advice but not for us i'm afraid, we both earn the same amount (run a limited company) and get the same amount of divi's each year, the problem with 2011/2012 tax year is going to be keeping under the 40% tax bracket each!! with the profits we will be making on the rented property We will probably have to take less in dividends to offset it.