Property rental or sale - tax enquiry

MrC100

Originally put this request in house purchasing and rental, but it is really a tax question and may not reach the best person.

Hi,

Am am unsure about my tax status and would welcome any advice.

I am due to inherit a 1/3 share of a property. This is valued at £175K, and rented out currently for £550 PCM. This will be co-owned by myself and my sisters.

At the moment I assume I would declare the rent on my tax return and offset 1/3 of maintenance/insurance costs.

I would like to know what happens if another 1/3 or all becomes available. Could I could claim the full costs and loan interest against the income via my tax return?

Also, if all was sold at the outset, I think we would not incur tax charges - but does this change if we sold the house after 5 years of continued rental? I.e does its current (inherited) value get deducted from any gains in its value at the point of sale? (Capital Gains Tax)

Any help would be really appreciated.

Thanks,
Neil

CLAPTON

MrC100 wrote: »

Originally put this request in house purchasing and rental, but it is really a tax question and may not reach the best person.

Hi,

Am am unsure about my tax status and would welcome any advice.

I am due to inherit a 1/3 share of a property. This is valued at £175K, and rented out currently for £550 PCM. This will be co-owned by myself and my sisters.

At the moment I assume I would declare the rent on my tax return and offset 1/3 of maintenance/insurance costs.

I would like to know what happens if another 1/3 or all becomes available. Could I could claim the full costs and loan interest against the income via my tax return?

Also, if all was sold at the outset, I think we would not incur tax charges - but does this change if we sold the house after 5 years of continued rental? I.e does its current (inherited) value get deducted from any gains in its value at the point of sale? (Capital Gains Tax)

Any help would be really appreciated.

Thanks,
Neil

briefly

you will be taxed on your share (1/3 or 2/3 or 100%) less your share of allowable expenses: maintenance, insurance, letting costs, gas safety checks, loan interest (if any) etc are allowable costs.


when you sell, capital gains tax will be based on the gain : this will be the selling price less acquisition price (probate value or price you buy the extra shares ) less buying /selling costs
currently you also have a cgt allowance of 11,000 and then you pay at 18% or 28% depending upon your tax status

MrC100

Thanks for this. It will make good sense for me to purchase a share with a loan should either of my sisters want to sell, otherwise the tax man will hit me for the rental. I am a higher rate payer.

The news that the probate value is used for CGT is also reassuring, as I thought this wouldn't count in those circumstances.

Many thanks.

CLAPTON

MrC100 wrote: »

Thanks for this. It will make good sense for me to purchase a share with a loan should either of my sisters want to sell, otherwise the tax man will hit me for the rental. I am a higher rate payer.

The news that the probate value is used for CGT is also reassuring, as I thought this wouldn't count in those circumstances.

Many thanks.

I see no logic in using a loan if you can otherwise afford to pay outright : unless of course you can earn more money with your saving than you pay in interest

MrC100

I would need a loan but...

My reasoning is that I can then offset the interest figure against my income from my share of the rent. As it stands, I will only be able to put more minor outgoings against my income and pay a big chunk to the treasury. I may as well take an immediate debt and think of the long term appreciation.

Is this logical - I'm not 100%!

CLAPTON

MrC100 wrote: »

I would need a loan but...

My reasoning is that I can then offset the interest figure against my income from my share of the rent. As it stands, I will only be able to put more minor outgoings against my income and pay a big chunk to the treasury. I may as well take an immediate debt and think of the long term appreciation.

Is this logical - I'm not 100%!

if you need a loan, then you need a loan
nothing to do with tax

MrC100

Very true. This is better expressed as I'm not sure which is best for me out of:

Status Quo. Take a third of the rent, and declare as extra income on my tax form.

Look to purchase other equity. Use a loan to buy a bigger stake, and accept I don't earn any income from the arrangement. Long term view.

Sell up myself and invest elsewhere.

CLAPTON

MrC100 wrote: »

Very true. This is better expressed as I'm not sure which is best for me out of:

Status Quo. Take a third of the rent, and declare as extra income on my tax form.

Look to purchase other equity. Use a loan to buy a bigger stake, and accept I don't earn any income from the arrangement. Long term view.

Sell up myself and invest elsewhere.

maybe do the maths?

sheramber

from April 2016 mortgage interest relief is to be rstricted to basic rate, even if you are a higher rate tp.