BTL tax query

iazms

Hi All,

My wife and I own a BTL house 50/50. But she manages the whole process of getting tenants and annual maintenance of the house etc...

So when it comes to earnings, is it possible to declare that all earnings are made by the wife and all expenses are therefore incurred by her too.

I am in full time employment and she is not so would be good if we can declare all the BTL earnings and expenses under her account only.

Please advise if this is possible...

TIA

Mikeyorks

iazms wrote: »

So when it comes to earnings, is it possible to declare that all earnings are made by the wife

The 'earnings' emanate from the property - so you could transfer all the interest, in it, to your wife.

Then if /when you sell .......... that would be the potentially disadvantageous position on CGT?

takoo

I am uncertain of your situation but I was told by the HMCR that for a letting in a house which is owned by spouses as tenants in common: the net investment income is shared equally between the two.

You might like to check whether a "wage" to the manager-spouse would be allowed against the gross rental income. If it is allowed it would probably be too low to attract income tax as earned income but would have the effect of reducing the net investment income and hence the tax on it. (However I have a niggling thought it is may not be allowable).

All the best

Takoo

iazms

Can anybody else advise if paying a "wage" to the master-spouce as given in the example by takoo is allowed? Someone else also said the same to me..

iazms

Ok, just read this on another site:

"There's lots you can do. For example, you can split your rental income with your spouse, or ensure that all of it is taxed in his or her hands. If you're married, or in a registered civil partnership, you can even do this without putting your own stake in the underlying properties at risk. You can keep 99% ownership but your spouse or civil partner can be taxed on half the income. That's what we call 'Have Your Cake and Eat It'. "

But question is, how do I go about doing this? And is it possible to have 50% ownership but spouce be taxed on 99% of the income?

Cook_County

You can indeed sever the joint tenancy and then make gifts of shares in the property to each other.

There may be stamp duty land tax implications so you should take professional advice.

EdInvestor

You can switch the share of ownership of the property to (say) 80/20 and then elect to divide the income/costs on that basis :

http://www.hmrc.gov.uk/forms/form17.pdf


Watch out for stamp duty on the transfer and CGT (though less of a problem going forward at the new 18% flat rate) .

Cook_County

I would suggest you read the gift-splitting draft legislation just published before you act as well...

Smi1er

You don't say if the property has a mortgage on it?

iazms

One of the properties does have a mortgage on it.

Not sure if this needs another thread or not. But we bought a 2nd BTL by paying all cash in August by remortgaging the 1st BTL. I am now wanting to remotgage the 2nd BTL and reduce the mortgage significantly of my residential house. Would I be able to offset the interest paid on the 2nd BTL? In some places I've read it is by declaring that it was always the intention to get a mortgage on the house. But in other it says that I wont be able to offset the interest.

Anyone advise?

Also by off setting more interest as expenses will almost mean very little tax needs paying therefore will mean i dont have to mess about changing the ownership between the wife and me.

Smi1er

iazms wrote: »

Anyone advise?

On an unmortgaged property you need the forms AP1 and TR1 from the Land Registry and a fee of about £50 to make changes to the ownership. If however you do have a mortgage then you need the permission of the mortgage company who will more than likely want a solicitor involved.

Regarding allowable interest as an expense.

You own your home and as it's your home the value, or mortgage, don't make a jot of difference. It does however have a £50K mortgage outstanding.

You bought House A to let out at £100K, with a mortgage of £90K.

House A has now increased in value to £140K, so You buy House B for £125K. House B is paid for by increasing the mortgage on House A by £45K, and also increasing the mortgage on your home by £80K.

So you own House B outright
House A is worth £140K but has a £135K mortgage on it
Your Home is worth whatever but has a mortgage of £130K

The most mortgage interest you can claim as an expense against House A is the interest payable on £100K of the mortgage (and the mortgage doesn'r necessaryily have to be on that property (but had to be raised with the purpose of buying it). The £100K is the limit as that was the cost of the property when the house was introduced to the letting market.

Ditto House B limit is £125K.

Key is that the mortgage doesn't have to be on the actual property, but as long as you borrowed the money for the purpose.