Unearned income from rental property

zarney

I have had a look on the hmrc site but cannot find anything that fits my query.

I have a property in my name which I am hoping to rent soon.

I know I would have to pay income tax on it, bit would it be added to what I earn from work ?
If I had the rental paid to me it would push the income over that level so would I have to pay higher rate tax on that or is the unearned income tax calculated differently.

Can he money be paid to my husbands account he works for himself but does not take a wage so the rental into his account would attract the lower rate of tax, not sure if I could get away with that though.

Or would it be better to register a ltd company and have the rental paid to that as we do have another empty house which could be added to it, but would it need to belong to the company not myself ???

Sorry so many questions and I cannot find decent answers
so trying to get a bit of a heads up before I go to the solicitors to get a contract drawn up because we know how much they cost...so the more I know in advance the better I think.

antrobus

zarney wrote: »

....I know I would have to pay income tax on it, bit would it be added to what I earn from work ?

Yes

zarney wrote: »

...If I had the rental paid to me it would push the income over that level so would I have to pay higher rate tax on that or is the unearned income tax calculated differently...

If the rental income pushes you into the higher rate tax bracket you will pay higher rate tax.

zarney wrote: »

....Can he money be paid to my husbands account he works for himself but does not take a wage so the rental into his account would attract the lower rate of tax, not sure if I could get away with that though.

If the property is in your name, the rental income is yours. You would need the put the property in your husband's name for it to be his income.

zarney wrote: »

...Or would it be better to register a ltd company and have the rental paid to that as we do have another empty house which could be added to it, but would it need to belong to the company not myself ???....

The property would need to belong to the company. Unless you're planning on building your own BTL empire it probably isn't worth putting it in a company.

Dave_the_Ginger_Cat

If you want to evaluate the benefits of a ltd co, I'd be inclined to pay an accountant for advice. There are merits, but there are also higher overheads, and you should probably not take advice from a forum on something that specific to you

00ec25

if the property is jointly owned with your husband then the income must be split 50/50 between you and him - that is tax case law in respect of married couples. It can only be varied from 50/50 if you have a declaration of trust in place and have sent a Form 17 to HMRC

if the property is entirely in your name then, marriage notwithstanding, for tax purposes, the income is 100% yours
you pay tax on your total income ie salary + rental profit , that will, as you say, mean a part of it will be taxed at 40%

setting up a Ltd company will be costly and is usually advised against for a single property:
1. is the property mortgaged? If yes the company will have to buy the property from you and pay off the mortgage. the company will struggle to raise finance, even if you underwrite it with a 100% director's personal guarantee (which could be secured against the house you live in, not the rental property)
2. the company will have to operate in reality, this is not a paper exercise and so will incur costs
3. the company will pay corporation tax at 20%
4. if you extract any profits from the company these will be taxed as your personal income. If taken as a dividend then the dividend could push you back into higher rate tax, although (and this is where the company structure scores) you will only have to pay an extra 22.5% tax not the full 40% because dividends incur a lower "higher" rate tax
5. when it sells the property (incl transfers back to you) the company does not get any CGT allowances (unlike you)

zygurat789

zarney wrote: »

I have had a look on the hmrc site but cannot find anything that fits my query.

I have a property in my name which I am hoping to rent soon.

I know I would have to pay income tax on it, bit would it be added to what I earn from work ?
If I had the rental paid to me it would push the income over that level so would I have to pay higher rate tax on that or is the unearned income tax calculated differently.
It is the net rental income which would be added to your earnings (and all other income)

Can he money be paid to my husbands account he works for himself but does not take a wage so the rental into his account would attract the lower rate of tax, not sure if I could get away with that though.
Your husband does may not take a wage but he is taxed on any profit he makes. So long as you go through the necessary processes it would be legal


Or would it be better to register a ltd company and have the rental paid to that as we do have another empty house which could be added to it, but would it need to belong to the company not myself ???

Sorry so many questions and I cannot find decent answers
so trying to get a bit of a heads up before I go to the solicitors to get a contract drawn up because we know how much they cost...so the more I know in advance the better I think.

...................

kidmugsy

zarney wrote: »

If I had the rental paid to me it would push the income over that level so would I have to pay higher rate tax on that …?

The usual way to avoid higher rate income tax is to contribute enough to a pension. That pension will become available to you at age 55, 25% as a tax-free lump sum, and the rest available to generate an income e.g by Income Drawdown.

pixiehelper

Regarding tax when it comes to council tax councils are now charging council tax for rental property that is empty even though the landlord is not receiving any income from it.

londonTiger

zarney wrote: »

Or would it be better to register a ltd company and have the rental paid to that as we do have another empty house which could be added to it, but would it need to belong to the company not myself ???

If you're intending on building a property empire then yes ltd is the way to go. But for just one property there is a lot of costs. Minimum accounting cost is going to be £400+ VAT for a ltd company.

Record keeping will need to be done properly and you must keep records properly for this.

A ltd company pays 30% corporation tax on profits. Dividends are not taxed so if if you are on a 40% tax rate. You can slash your income tax on profit of rental income by 10%..

But will that 10% be bigger than the accounting costs to makes up for it?

purdyoaten

londonTiger wrote: »

If you're intending on building a property empire then yes ltd is the way to go. But for just one property there is a lot of costs. Minimum accounting cost is going to be £400+ VAT for a ltd company.

Record keeping will need to be done properly and you must keep records properly for this.

A ltd company pays 30% corporation tax on profits. Dividends are not taxed so if if you are on a 40% tax rate. You can slash your income tax on profit of rental income by 10%..

But will that 10% be bigger than the accounting costs to makes up for it?

30% - are you sure???

http://www.hmrc.gov.uk/rates/corp.htm

00ec25

londonTiger wrote: »

Dividends are not taxed ....

there is only one word for this - rubbish
for a basic rate taxpayer the dividend payment is treated as being received with tax paid
but
OP has stated they are on the margin for higher rate when the dividend income is included.
Dividends are always the ultimate top slice of your total income so are always the amount that may or may not take you into the next bracket.
as i explained above where this happens a 40% taxpayer has to pay a further 22.5% of the dividend received as additional income tax
time to educate yourself... http://taxaid.org.uk/info/taxation-of-savings/taxing-dividends

londonTiger

Oh right sorry. I'm wrong on this.

I studied taxation in 2006 where the corp tax may have been 30%.

My company isn't in profit yet. (Growth phase reinvesting every penny back into business), so never had to pay corp tax but was advised by accountant dividends aren't taxed for me.