Bit of tax advice please

in_my_bumble_opinion

I'll try to keep this as simple as possible.

A lady was asking my advice tonight on a tax thing and I really didn't know what to suggest, so I'm hoping someone on here can help. She is a retired lady, and has recently realised that she's been in the wrong tax bracket for about 9 years (including her last 7 working years). She's owed a fair bit and is about to claim it back but she's told me today that she rented her home out to a close family member for about 10 years (ending when she retired)....she did not live in her home as her job was in another location, where she rented. Basically, the rent was a fairly token sum (£400 a month) and nowhere near covered the expenses of the house (mortgage interest payments, bills, council tax....all were paid by her), so she has not earned anything as a result. The true rental value of the house would probably be about £1200, but she wanted to help her family member (who has health problems). Anyway, she never declared the rent as income...she figured because she was losing money overall that it wasn't relevant. I've told her that it should have been declared anyway, and obviously she's now in quite a panic (oops!). It's a real shame as she is a lovely lady who has simply tried to help a relative and has been out of pocket as a result (instead of turning a large rental income as she could have chosen to do). I'm just not sure what to suggest to her as I'm not to up on income tax.....should I be sending her to the local tax office to explain, the CAB, an accountant, a tax advisor or somewhere else?

Any suggestions?

in_my_bumble_opinion

Crikey, that wasn't as short as I thought!

Skint_yet_Again

She will not need to complete Self Assessment Tax Returns if the gross rents were less than £10000 and the net rents (after expenses) were less than £2500.
http://www.hmrc.gov.uk/sa/need-tax-return.htm

The earliest she can claim a repayment is 2008/9 which goes out of date on 5 April 2013. She cannot claim repayment for 2007/8 or earlier as these years are out of date. She should claim in writing and also give details of the rental income, expenses and losses.

She may be liable to capital gains tax when she sells the property as it has been let and may need to seek advice from HMRC or an accountant
http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm

kidmugsy

If the rent was less than the interest portion of the mortgage payments then she would have no liability to tax. But she really should have reported all this. Tricky. Is it best to let sleeping dogs lie? She could do that with a clear conscience, after all. Or would it leave her fretting?

Perhaps she could start with the CAB?

jimmo

As long as she is not required to complete Tax Returns, your friends only obligation is to notify HMRC if and when she realises a taxable profit from her rental business.

http://www.hmrc.gov.uk/manuals/emmanual/EM4551.htm

If she has not made a profit she has done nothing wrong.

in_my_bumble_opinion

jimmo wrote: »

As long as she is not required to complete Tax Returns, your friends only obligation is to notify HMRC if and when she realises a taxable profit from her rental business.

http://www.hmrc.gov.uk/manuals/emmanual/EM4551.htm

If she has not made a profit she has done nothing wrong.

I do hope this is true.

Can it be so simple?

jimmo

in_my_bumble_opinion wrote: »

I do hope this is true.

Can it be so simple?

Not my words, HMRC’s.

The link I gave is to the HMRC Enquiry Manual and the second paragraph says

“
There is no requirement to notify chargeability where there is no liability to Income Tax or Capital Gains Tax or where sufficient tax has been deducted at source to meet the net liability for the year.”
Yes it really is that simple.