Renting a property and paying tax

bhamoggy

I need some advice please.
We live in a house that my wife gets for a minimal rental fee through her job with the school she's the caretaker of.
This means I can rent our 3 bed house that we used to live in.
I am currently paying interest only on the mortgage which is about £250 per month, the rental on the house will bring in about £900 per month.
What should I do about paying tax and how much would I expect to pay?
If I have to pay too much, I may as well go to a repayment mortgage rather than pay lots of tax.
This I our only home which we still owe £130,000 , I'm not a property magnet, this is all we own.
Please give me your advice.
Thanks

00ec25

You've not quite got it yet and without more details no one can tell you how much tax you or wyour wife will pay

1. who owns your only home? Is it 100% in your name? Is it 100% owned by your wife? Is it joint tenancy (so 50/50 with your wife)? Is it tenaqnt in common - what are the % for you/wife?

2. You are (legally) married therefore the rental income must by law be split between the oweners in accordancne with the actual % ownership proportions. Therefore you must account for the income separately so each may face a tax bill individually depending on how you own it

3. only the interest payable on a mortagge is allowable against tax, so if you convert to repatyment it will not affect how much tax you will pay

4. you and/or your wife (ie the owners) must write to your individual tax office (get the details from your respective employer) and inform them you have rental income. Given you'll be getting 10,800 gross per year in total you may be required to do a full tax return rather than just do it by letter - HMRC will tell you what they want

5. the fact you are married and she lives in "job related accommodation" has a big plus - your old house will remain exempt form CGT becase a married couple are demmed to have the same "home" and as the one you live in is job related that is ignored for CGt purposes and your old place keeps it private residence relief

G_M

Please read this post for info about letting property.

See 00ec's post above re tax, but my advice would be to contact HMRC. You WILL need to complete a tax form (probobly one each).

And MAY need to pay tax (probobly will given those figures).

bhamoggy

Thanks for replies, the mortgage is in joint names as the question was asked.
I don't fully understand point 5 in 00ec25 post?
Can you explain this part in easier tems please?

00ec25

bhamoggy wrote: »

Thanks for replies, the mortgage is in joint names a

Not the answer to the question I asked but lets assume what you really mean is that you own 50% and wife owns 50%
you can have a joint mortgage but that does not automatically mean each owns 50 % of the property, all it means is you are equally liable for the mortgage debt!!!

so you own 50% therefore you are liable for tax on 50% of the net profit from letting your property ie (900/2) minus (eligible costs of letting it/2) = net profit. You will pay tax on that net profit @ your respective tax rate eg 20%

you wife is liable for exactly the same, ie the other 50% of the net profit

remember for income tax purposes each of you is taxed as a separate person but there are rules relating to how rental profit is split for married couples, it must reflect your ownership portions

bhamoggy wrote: »

I don't fully understand point 5 in 00ec25 post?
Can you explain this part in easier tems please?

you and your wife now have 2 "homes", the one you used to live in and the one you now live in. Now, because the old home is let out, clearly it is no longer available for you to actually live in, so in tax terms, it is no longer your "only or main residence". Therefore when you sell it , you and wife would be liable for capital gains tax because you have then sold a property which is not your main home. In tax terms your "main home" is the one where you are actually living , ie the caretakers house - the fact that the latter is rented rather than owned by you is irrelevant in deciding which is the martial home as HMRC says that married couples live together and therefore the martial home is the one they actually occupy - so in your case it is the caretakers place, not the property you actually own

however, because it comes with your wife's job (if she was not the caretaker she could not live in it) an allowance is made in this specific circumstance which means HMRC will "pretend" that your let property has always remained your "home" even though you don't and can't live there because it has tenants in.

Therefore HMRC allow you to keep your exemption from CGT so when you sell it you will not have to pay any capital gains tax on its gain in value