Capital Losses on Rental Property

Jeremy535897

[Deleted User] said:

Lisa1978 said:

[Deleted User] said:

Lisa1978 said:

Yep [Deleted User] said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

The loss on the apartment property can be carried forward indefinitely. However, as the house is in your name only only half of this loss is available to set against it with your husbands half of the loss unable to be utilised.

Would your husband consider putting the apartment into your name only at this stage?

I'm sure he would although i'm not sure its a good idea as he is a basic rate payer whereas i'm a 40% tax payer. Thanks! 

I presume that you are concerned that he will pay tax at 40% on the half share of the rental income that he will receive. However, as a married couple, one can declare to have a different percentage of share on the income from a property than from the ownership. See attached:

https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

This is straying into more complex areas. The basic rule on joint ownership of property between two spouses living together is that income is taxed 50:50 unless an election is made to reflect the true split (using form 17). For example, a property could be owned 90:10. Without the election, income is taxed 50:50. With the election, it is taxed 90:10. Capital gains always follows the true (90:10) ownership. You could therefore transfer 90 (or 99) percent of the property to you, so you got the majority of the capital loss, but leave the rent taxed 50:50. I suspect the property is simply owned as joint tenants, so it would have to be severed, turning it into a tenancy in common, before changing the percentage ownership shares. Beware stamp duty if there is a mortgage on the property, or any consideration is given.

For main residence relief, as each of you has had an interest in the apartment from when it was acquired, any transfer between spouses will not affect its calculation (section 222(6) TCGA 1992).

[Deleted User]

Jeremy535897 said:

[Deleted User] said:

Lisa1978 said:

[Deleted User] said:

Lisa1978 said:

Yep [Deleted User] said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

The loss on the apartment property can be carried forward indefinitely. However, as the house is in your name only only half of this loss is available to set against it with your husbands half of the loss unable to be utilised.

Would your husband consider putting the apartment into your name only at this stage?

I'm sure he would although i'm not sure its a good idea as he is a basic rate payer whereas i'm a 40% tax payer. Thanks! 

I presume that you are concerned that he will pay tax at 40% on the half share of the rental income that he will receive. However, as a married couple, one can declare to have a different percentage of share on the income from a property than from the ownership. See attached:

https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

This is straying into more complex areas. The basic rule on joint ownership of property between two spouses living together is that income is taxed 50:50 unless an election is made to reflect the true split (using form 17). For example, a property could be owned 90:10. Without the election, income is taxed 50:50. With the election, it is taxed 90:10. Capital gains always follows the true (90:10) ownership. You could therefore transfer 90 (or 99) percent of the property to you, so you got the majority of the capital loss, but leave the rent taxed 50:50. I suspect the property is simply owned as joint tenants, so it would have to be severed, turning it into a tenancy in common, before changing the percentage ownership shares. Beware stamp duty if there is a mortgage on the property, or any consideration is given.

For main residence relief, as each of you has had an interest in the apartment from when it was acquired, any transfer between spouses will not affect its calculation (section 222(6) TCGA 1992).

Sadly I know that I was aware of this but had forgotten. I am becoming increasingly aware that the length of time since being in practice exponentially affects one’s memory of the subject. Dealing almost exclusively with sole traders and partnerships has further contributed to the diminution rate of the grey matter. 

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

purdyoaten2 said:

Lisa1978 said:

purdyoaten2 said:

Lisa1978 said:

Yep [Deleted User] said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

The loss on the apartment property can be carried forward indefinitely. However, as the house is in your name only only half of this loss is available to set against it with your husbands half of the loss unable to be utilised.

Would your husband consider putting the apartment into your name only at this stage?

I'm sure he would although i'm not sure its a good idea as he is a basic rate payer whereas i'm a 40% tax payer. Thanks! 

I presume that you are concerned that he will pay tax at 40% on the half share of the rental income that he will receive. However, as a married couple, one can declare to have a different percentage of share on the income from a property than from the ownership. See attached:

https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

This is straying into more complex areas. The basic rule on joint ownership of property between two spouses living together is that income is taxed 50:50 unless an election is made to reflect the true split (using form 17). For example, a property could be owned 90:10. Without the election, income is taxed 50:50. With the election, it is taxed 90:10. Capital gains always follows the true (90:10) ownership. You could therefore transfer 90 (or 99) percent of the property to you, so you got the majority of the capital loss, but leave the rent taxed 50:50. I suspect the property is simply owned as joint tenants, so it would have to be severed, turning it into a tenancy in common, before changing the percentage ownership shares. Beware stamp duty if there is a mortgage on the property, or any consideration is given.

For main residence relief, as each of you has had an interest in the apartment from when it was acquired, any transfer between spouses will not affect its calculation (section 222(6) TCGA 1992).

Sadly I know that I was aware of this but had forgotten. I am becoming increasingly aware that the length of time since being in practice exponentially affects one’s memory of the subject. Dealing almost exclusively with sole traders and partnerships has further contributed to the diminution rate of the grey matter. 

I suspect you would find that you would forget it all a lot quicker if you didn't get involved in this forum. I am mostly retired now, and I have found that answering the questions posed here has helped me recall things I had forgotten about, and learn loads of new stuff (the coronavirus board made me look deeply into the CJRS and SEISS rules for example). Perhaps the most important thing I have learned is that I can't rely entirely on my memory now (in my youth I could tell you what every section in the predecessors to TCGA 1992 said), and I have to look these things up (like the points regarding joint ownership). Sometimes my memory is at fault, but normally I find I have either remembered the answer correctly, or have remembered where to find it (although it is sometimes embarrassing to see how many times I have searched the same page). I do know I have got a lot better over the last 12 months, so keep persisting.

Jeremy535897

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

purdyoaten2 said:

Lisa1978 said:

purdyoaten2 said:

Lisa1978 said:

Yep purdyoaten2 said:

Lisa1978 said:

Thank you for your advice. 

I would be thinking of selling the apartment (which is in joint names) in around 5 years. 

The house (my name only) i am intending to keep indefinitely as an asset or possibly transfer to my son when he is older.  

Would this change anything? 

It is not clear which is the apartment and which is the house as this is the first time that you have used the terms. Is the apartment the loss making property or the property that you have let out for ten years? 

Transferring the property to your son would be regarded as a sale to him at market value. Again - not sure whether this property is the loss making property.

Morning, the apartment is the loss making property.  It is in joint names.  We then moved into our now residential home and let it out. 

The house is in my name only.  It was my property before i met my now husband. 

Thanks. 

The loss on the apartment property can be carried forward indefinitely. However, as the house is in your name only only half of this loss is available to set against it with your husbands half of the loss unable to be utilised.

Would your husband consider putting the apartment into your name only at this stage?

I'm sure he would although i'm not sure its a good idea as he is a basic rate payer whereas i'm a 40% tax payer. Thanks! 

I presume that you are concerned that he will pay tax at 40% on the half share of the rental income that he will receive. However, as a married couple, one can declare to have a different percentage of share on the income from a property than from the ownership. See attached:

https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

This is straying into more complex areas. The basic rule on joint ownership of property between two spouses living together is that income is taxed 50:50 unless an election is made to reflect the true split (using form 17). For example, a property could be owned 90:10. Without the election, income is taxed 50:50. With the election, it is taxed 90:10. Capital gains always follows the true (90:10) ownership. You could therefore transfer 90 (or 99) percent of the property to you, so you got the majority of the capital loss, but leave the rent taxed 50:50. I suspect the property is simply owned as joint tenants, so it would have to be severed, turning it into a tenancy in common, before changing the percentage ownership shares. Beware stamp duty if there is a mortgage on the property, or any consideration is given.

For main residence relief, as each of you has had an interest in the apartment from when it was acquired, any transfer between spouses will not affect its calculation (section 222(6) TCGA 1992).

Sadly I know that I was aware of this but had forgotten. I am becoming increasingly aware that the length of time since being in practice exponentially affects one’s memory of the subject. Dealing almost exclusively with sole traders and partnerships has further contributed to the diminution rate of the grey matter. 

I suspect you would find that you would forget it all a lot quicker if you didn't get involved in this forum. I am mostly retired now, and I have found that answering the questions posed here has helped me recall things I had forgotten about, and learn loads of new stuff (the coronavirus board made me look deeply into the CJRS and SEISS rules for example). Perhaps the most important thing I have learned is that I can't rely entirely on my memory now (in my youth I could tell you what every section in the predecessors to TCGA 1992 said), and I have to look these things up (like the points regarding joint ownership). Sometimes my memory is at fault, but normally I find I have either remembered the answer correctly, or have remembered where to find it (although it is sometimes embarrassing to see how many times I have searched the same page). I do know I have got a lot better over the last 12 months, so keep persisting.

I should have said section 222(7) TCGA 1992, not section 222(6)!

Lisa1978

Thanks for your replies! 

Regarding the apartment i have another query. As stated previously this is in joint names. The below figures are in total. 

Income = £5,940

Costs 
Management Fee = £625
Rates = £696
Repairs = 250

Profit £4369 (£2184 each) 

For info : Interest Only Mortgage £1872

Submitting a SA we will obviously be charged tax on the above (husband 20% and me 40%).
Is this correct given that we paid £125k for the apartment and its now worth £100k? Is tax still chargeable even on loss making properties? I'm assuming yes and that capital losses are only realised when the asset is disposed of?  

Jeremy535897

Lisa1978 said:

Thanks for your replies! 

Regarding the apartment i have another query. As stated previously this is in joint names. The below figures are in total. 

Income = £5,940

Costs 
Management Fee = £625
Rates = £696
Repairs = 250

Profit £4369 (£2184 each) 

For info : Interest Only Mortgage £1872

Submitting a SA we will obviously be charged tax on the above (husband 20% and me 40%).
Is this correct given that we paid £125k for the apartment and its now worth £100k? Is tax still chargeable even on loss making properties? I'm assuming yes and that capital losses are only realised when the asset is disposed of?  

You pay tax at 40% on £1,248 and 20% on £936. Your husband pays tax at 20% on £1,248. Why are you paying "rates"? Council tax is payable by the occupant. The fact that the property stands at a loss is not relevant to your income tax liability.

Lisa1978

Jeremy535897 said:

Lisa1978 said:

Thanks for your replies! 

Regarding the apartment i have another query. As stated previously this is in joint names. The below figures are in total. 

Income = £5,940

Costs 
Management Fee = £625
Rates = £696
Repairs = 250

Profit £4369 (£2184 each) 

For info : Interest Only Mortgage £1872

Submitting a SA we will obviously be charged tax on the above (husband 20% and me 40%).
Is this correct given that we paid £125k for the apartment and its now worth £100k? Is tax still chargeable even on loss making properties? I'm assuming yes and that capital losses are only realised when the asset is disposed of?  

You pay tax at 40% on £1,248 and 20% on £936. Your husband pays tax at 20% on £1,248. Why are you paying "rates"? Council tax is payable by the occupant. The fact that the property stands at a loss is not relevant to your income tax liability.

Thanks again Jeremy.  We live in Northern Ireland whereby we don't pay council tax, we have rates. 
I pay it directly to the rates office but it is covered within the rental income i receive. 
Can you please explain where the £1248 figures comes from?
I assumed the loss making situation was not relevant.
Thanks 

Lisa1978

Jeremy535897 said:

Lisa1978 said:

Thanks for your replies! 

Regarding the apartment i have another query. As stated previously this is in joint names. The below figures are in total. 

Income = £5,940

Costs 
Management Fee = £625
Rates = £696
Repairs = 250

Profit £4369 (£2184 each) 

For info : Interest Only Mortgage £1872

Submitting a SA we will obviously be charged tax on the above (husband 20% and me 40%).
Is this correct given that we paid £125k for the apartment and its now worth £100k? Is tax still chargeable even on loss making properties? I'm assuming yes and that capital losses are only realised when the asset is disposed of?  

You pay tax at 40% on £1,248 and 20% on £936. Your husband pays tax at 20% on £1,248. Why are you paying "rates"? Council tax is payable by the occupant. The fact that the property stands at a loss is not relevant to your income tax liability.

I think i worked it out. Profit £2184 each, less 50% each of the Interest only mortage? £2184-936 = £1284.  I'm not sure i can deduct the IO mortgage off the profit.  I thought that was all done away with.  

[Deleted User]

From April 2020 you cannot claim any deduction for mortgage interest against profits. There is a box where you can claim a tax credit of 20% on the interest paid. In your cases - 20% of £936 each under ‘non residential property finance costs’ 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/973764/sa105_English_Form-2021.pdf

Jeremy535897

Lisa1978 said:

Jeremy535897 said:

Lisa1978 said:

Thanks for your replies! 

Regarding the apartment i have another query. As stated previously this is in joint names. The below figures are in total. 

Income = £5,940

Costs 
Management Fee = £625
Rates = £696
Repairs = 250

Profit £4369 (£2184 each) 

For info : Interest Only Mortgage £1872

Submitting a SA we will obviously be charged tax on the above (husband 20% and me 40%).
Is this correct given that we paid £125k for the apartment and its now worth £100k? Is tax still chargeable even on loss making properties? I'm assuming yes and that capital losses are only realised when the asset is disposed of?  

You pay tax at 40% on £1,248 and 20% on £936. Your husband pays tax at 20% on £1,248. Why are you paying "rates"? Council tax is payable by the occupant. The fact that the property stands at a loss is not relevant to your income tax liability.

I think i worked it out. Profit £2184 each, less 50% each of the Interest only mortage? £2184-936 = £1284.  I'm not sure i can deduct the IO mortgage off the profit.  I thought that was all done away with.  

Purdyoaten has answered this. You effectively get tax relief at the basic rate. For your husband, there is no difference between the old and new rules, because he only pays tax at the basic rate. For you, that is why you effectively pay tax at 20% on the rent covered by the mortgage interest, rather than 40%.