Cutting tax from rental property - some questions

Savvy_Sue

sheramber wrote: »

OP doesn't say her payment as below the personal allowance.

NIC payments could be due depending on income level.

Both of those are true, but what he said was:

simonfitba wrote: »

3. My wife (who doesn't have any income) has done some maintenance work on the flat and I paid her for labour and materials rather than employ a tradesman. Can I claim this as an expense?

I'm just thinking that she would have had to do quite a lot of work, or be paid very generously, to exceed the personal allowance. Possibly she does need to register as self-employed, but I don't see it in as definite a light as booksurr did.

TheCyclingProgrammer

Savvy_Sue wrote: »

Surely if this is all she's done, and what the OP paid her was less than her personal allowance, and any other source of taxable income (OP says she has none) does not cause her to exceed her personal allowance, she needs do nothing more than keep records ...

Agree with this. A one off payment does not make OP's wife self employed or her running any kind of business. If it was declared on a tax return I would be putting it in the "any other income" box, not filling out a self employment sheet.

If it's under the tax threshold then there's no obligation to notify HMRC.

simonfitba

Hello all.

I should have said the payment to my wife was only a couple of hundred pounds. So that would be her total income for the year.

As far as any allowances for using my main home's mortgage interest on the rental, I doubt this would be allowed. (Although I'd like to hear otherwise)
The rental was already mortgage-free when I bought the family home. I guess I should have reversed the mortgages but I was worried about the Capital Gains Tax hit when I come to sell the rental.

tebthereb

simonfitba wrote: »

Hello all,

I currently have a rental property (my old flat) which is mortgage-free. I married and bought a family home.

Just wondering when it comes to my tax return for the rental income, can I claim back the following...

1. Interest on the mortgage on my family home (probably not, just thought I'd ask)

I think the only possible answer to whether you can claim this is "yes" as it is self-assessment and so it is up to you. However, I think it would be contrary to HMRC's guidance so if you wanted to claim it then you should make an additional disclosure note on your return to explain what you have done. It is pretty unlikely HMRC would take the point, but if they did I fear you may struggle to justify it which could risk penalties. So, it depends on your approach to risk. Most accountants will say they cannot justify a claim in these circumstances.

simonfitba wrote: »

2. Set-up costs when renting the flat (some furniture etc.)

I am confused by respondents saying yes to this based upon the example given of furniture costs at a newly let flat. I thought that for 2015/16 you could get the wear and tear allowance - broadly 10% of rents - if the property is fully furnished. If it is not, then you do not get any relief for initial costs of furniture; only replacement costs. For 2016/17 even the wear and tear goes out the window. Other setup costs... depends what they are.

simonfitba wrote: »

3. My wife (who doesn't have any income) has done some maintenance work on the flat and I paid her for labour and materials rather than employ a tradesman. Can I claim this as an expense?

Again surprised by all the comments about tax returns. If she is your employee and this is her only income then you are fine to pay her a few hundred pounds as an employee without any tax or NIC issues for her. At the level you have since mentioned there is almost certainly no requirement for you to even operate a PAYE scheme. Provided the payment for the work is reasonable HMRC should not care about this.

If you are expecting a rental profit and your wife has no income you might want to think about having the property in joint names so she can be taxed on 50% of the income - potentially at 0% - rather than you if you will pay tax on the profits.

simonfitba wrote: »

4. The property needs a new kitchen (it's 30 years old). Can this be claimed for in the future?

Agree this should be fine unless making improvements beyond original condition. Replacing old for new technology does not count as an improvement.

simonfitba wrote: »

5. Can I pay someone who isn't a qualified accountant to help me with my return and then claim this fee back?

You could pay anyone, not even an accountant, and still claim relief.

starM

You may consider tenancy in common - 1/99% share.

This will mean you will pay 1% tax on profits and your wife will pay 99% however because she is not working likely no tax will be payable due to personal tax free allowance.

This will also help on CGT allowance if you do decide to sale the property in the future. https://www.gov.uk/joint-property-ownership

simonfitba

Found this on the net, surely it can't be right....

"The husband could enter into a declaration of trust under which he transfers a 1% beneficial interest in the property to his wife; he thus retains 99% beneficially of the property. No declaration is made i.e., no Form 17 is lodged with HMRC. As a consequence each spouse will now be subject to income tax on 50% of the rental income. The husband will have effectively reduced his income tax liability on the rental income (as 50% is allocated to his wife) whilst he still retains the bulk (99%) of the property."

kidmugsy

I'm not sure I see the point of the 99:1 husband: wife. To minimise CGT when the time comes to sell, surely something closer to 50:50 would be best. To minimise income tax, something closer to 1:99.

As for Simon's quotation from the net: who said it?

simonfitba

kidmugsy wrote: »

As for Simon's quotation from the net: who said it?

It was from here:
http://www.taxationweb.co.uk/tax-articles/property-taxation/the-principles-and-implications-of-joint-tenancy-and-tenancy-in-common-for-spouses.html

Seems like the income is split always 50/50 if you are married, no matter how the the tenancy in common is split.

A 99/1 in my favour would help in CGT because the property used to be my main residence.

PS. Not sure how you can get a "tenancy in common" under Scots law.

kidmugsy

Posts 19 and 20 correct my ignorance: thanks. As for Scots Law, "The situation in Scotland is simpler as married couples usually own their home as if they were tenants in common already. Confusingly, this is known as being 'joint owners' ..."

I imagine it's not confusing at all unless you insist that English usage ought to be applied everywhere else in the world.

Mind you, my source is the Daily Mail. On the other hand, it's usually more reliable than the Guardian.

Personally I wouldn't do anything in Scotland based on an English lawyer's attempt to explain the situation there. Simon should consult his own lawyer.