cutting tax on rental income

newhouse_2

Hi everyone I wondered if someone knows the answer to my question.
My wife and I own our house and have a mortgage on it.
We are planning on obtaining a LET to BUY mortgage and then renting it out. The rental income will be approx £1100 and the mortgage about £600. So a proffit of £500.
I am a 40% tax payer and my wife does not currently work. (She is training to be a Teaching assistant).
The question I have is:- how much tax do we have to pay on the £500 ?

I am assuming it will be split 50/50 between us. ie. £250 taxed at 40% and half taxed at 0%.

Is this correct? Is there anyway we can avoid the 40% tax?

Thanks for your help.
P.S. I am new to this forum and this is my first post.

Caz3121

newhouse wrote: »

The rental income will be approx £1100 and the mortgage about £600. So a proffit of £500.

You have missed off allowable expenses, are you using an agent? gas checks, maintenance etc will all come off together with the mortgage interest (not capital) before you work out the taxable profit

CLAPTON

you can only offset the interest on the mortgage against your rental income and not the total payment

as you are married and own the property jointly then the rental income will be deemed equally split between you



are you aware of the legal side of letting out a house?

try
http://www.landlordzone.co.uk/

GwylimT

You are only tax exempt from the interest on the mortgage not the whole repayment, so anything above interest is profit. Yes, it will be split 50/50 between you.

You would most likely benefit from joining your local landlords association, its good to talk to local landlords to find out their own experiences, I would also suggest finding a good estate agent to manage your property. However, you are still liable for everything, so before you allow an estate agent to do anything view the paperwork yourself, e.g. tenants references etc.

newhouse_2

Hi Thanks for all the answers and advice.

The let to buy would be an interest only mortgage.
I do not understand what you mean by you are only tax exempt from the interest on the mortgage not the whole repayment, .

Rental income of £1000 and mortgage repayment £600, so tax will only be payable on the £400 profit and then it is split 50 / 50 between myself and my wife, right ??

I will get there eventually.

Thanks.

CLAPTON

newhouse wrote: »

Hi Thanks for all the answers and advice.

The let to buy would be an interest only mortgage.
I do not understand what you mean by you are only tax exempt from the interest on the mortgage not the whole repayment, .

Rental income of £1000 and mortgage repayment £600, so tax will only be payable on the £400 profit and then it is split 50 / 50 between myself and my wife, right ??

I will get there eventually.

Thanks.

all BTL mortgage are not interest only

only the interest is offset against rental interest

where the mortgage is interest only then the whole monthly payment would be offset against rental


the rental is deemed to be split equally between both married owners
that means that it is split 50/50 between you



as several posts have already told you, there are other costs you can offset against the rental income : so, in your example, the taxable profit would be less than 200 each per month

John_Pierpoint

Are you letting it furnished?

holly_hobby

Ok, its actually a Buy To Let mortgage you're talking about.

newhouse wrote: »

I am a 40% tax payer and my wife does not currently work. (She is training to be a Teaching assistant).

I am assuming it will be split 50/50 between us. ie. £250 taxed at 40% and half taxed at 0%.

Is this correct? Is there anyway we can avoid the 40% tax?

Yes, in addition to making sure you offset all permitted expenses (including mortgage interest), there is further action you can take as a married couple to cope with differing tax bands and tax liability.

I assume that the property is held under a joint tenancy arrangement ?

Which means that as you are married, the rental income will be assumed by HMRC to be dividied equally between you ie 50/50.

If you were both basic rate tax payers, this wouldn't be an issue, but the fact you are a 40%'er and your wife has no income - we can manage how much tax is charged, and actually have it that little tax will be payable between you (whilst wife's income is below her PA).

The way to do this is to change the ownershp to tenants in common, which is where the legal and beneficial owernship can be unequally divided between you.

You weight ownership in favour of your wife (non tax payer), ie 99/1.

This means for HMRC purposes, that the rental income is apportioned in the same ratio ie 99/1 in respect of your wife.

You complete and submit HMRC Form 17, advising of the ownership and resulting rental division. http://www.hmrc.gov.uk/forms/form17.pdf

You complete and return your individual annual self assessments, each declaring your rental income in the noted ratio of receipt - ie if you are left with £100 net rent for tax purposes, it would be £99 under wife's return and £1 under yours (you get the general idea !).

I must stress this is not advice but comment, and you should always have tax guidance checked both at outset and on a regular basis, for its continued suitability and on going benefit to you and your individual finanical circs - to which you may wish to engage a tax practioner/accountant to assist.

Hope this helps

Holly