Renting a house and the taxman

suky321

Hi,

I am just wondering what the most tax efficient way of being a landlord is.

I currently have a house which I am renting, and it is a joint named property and mortgage on my wife and my name.

I am a higher rate tax payer, she is part time (20 hours a week ) due to looking after children.

We have a capital repayment mortgage and receive rent on the property (less than monthly mortgage amount).

I am rounding off the figures for simplicity, we receive £500 rent per month (after agency fees). Our mortgage is £700 per month, and the interest on the mortgage is £400 per month. So we need to pay tax on the capital part i.e. £500 rent - £400 interest. We pay tax on the £100 per month income.

Would it be more tax efficient if I put the house on my wifes name (yes she is trustworthy and not likely to run off ). Would this just be a simple process of contacting the land registry to do so. Or should we continue paying tax as we are, I'm not sure if I'm paying correctly, i.e. as it's a joint house, should I just be paying tax on half of the £100 income i.e. £50, and she pays no tax as she is a part time worker?

Thanks in advance for any help. Much appreciated.

CLAPTON

well no

you can't change the ownership of the property without the permission of the mortgage company which they are unlikely to give.

have you explored all the allowances you can claim against the rental income?

in general the profit is considered to be 50-50 for a married couple.

00ec25

suky321 wrote: »

Or should we continue paying tax as we are, I'm not sure if I'm paying correctly, i.e. as it's a joint house, should I just be paying tax on half of the £100 income i.e. £50, and she pays no tax as she is a part time worker?

you are married, it is jointly owned therefore there is no choice in the amtter, you are required to split income and costs 50/50 gtherefore will pay taxc on only 505 of the profit.

If you have not been doing it that way so far then you need to sort that out

as far as income split goes, sadly becuase you are married the income split is required to align with actial onwership portions, so to vary the income share you will have to transfer ownership to your wife - this would include chainging to tenants in common if you are currently legally joint tenants

as Clapton says you will need permission from your mortgage company

zygurat789

00ec25 wrote: »

you are married, it is jointly owned therefore there is no choice in the amtter, you are required to split income and costs 50/50 gtherefore will pay taxc on only 505 of the profit.

If you have not been doing it that way so far then you need to sort that out

as far as income split goes, sadly becuase you are married the income split is required to align with actial onwership portions, so to vary the income share you will have to transfer ownership to your wife - this would include chainging to tenants in common if you are currently legally joint tenants

as Clapton says you will need permission from your mortgage company

This didn't used to be the case but then I am going back to the early 1990s.

00ec25

zygurat789 wrote: »

This didn't used to be the case but then I am going back to the early 1990s.

Ok I was a bit brief in the explanation - the OP could seek an election but without one the default position is 50/50 which, as I am assuming a Joint Tenancy in this case, is the actual ownership portions. If they switch to tenants in common then change of portions is possible but needs to be declared

see PIM1030
http://www.hmrc.gov.uk/manuals/pimmanual/PIM1030.htm

where the joint owners are husband and wife, or civil partners, profits and losses are treated as arising to them in equal shares unless:

• both entitlement to the income and the property are in unequal shares, and
• both spouses, or civil partners, ask their respective tax offices for their share of profits and losses to match the share each holds in the property.

income is aligned to unequal ownership

also see guidance notes re tax return box 3 2nd paragraph
http://www.hmrc.gov.uk/worksheets/sa105-notes.pdf

If you and your spouse live together, any income from property held in joint names is usually treated as if it belonged to the two of you in equal shares (even if you own it in unequal shares) so you will each be taxed on half of the income. However, if you are entitled to the income in proportion to your share, you may make an election on form 17 to be taxed on the actual basis.

suky321

Many thanks to everyone for their responses, you've all been very helpful. Much appreciated.