Buy to let and tax advice please.

Gotcha22

Hi

So me and hubby are joint tenants and are just about to let our house.
We are accidentally landlords.

Regarding tax... I earn less as work part time

Rental income 50.50 will take him into the higher rate tax band.

Should we switch to tenants in common. Say 70.30 or 60.40 to recover different percentages for income tax purposes please.

We've lived here 21 years, paid £150 our sale fell through at £375 last month. We're now accidental.landlords, with a buy to let mortgage to release the cash to move to a larger house. 

What happens when we sell please? It's a 5 Yr mortgage... is his Capital gain split the same percentages please? And is his percentage reduced also.

If I assume we sell in 10 years for £400k, owned for 31 years, main home for 21. What's the best way to set this up please.

Thanks very much, for any advice

canaldumidi

Yes Tenants In Common will split the rental income and hence the income tax liability in whatever proprtion you agree. Have a solicitor draw up a Deed to specify this.

The same applies eventually to Capital Gains Tax

theartfullodger

Gotcha22 said:

Hi

So me and hubby are joint tenants and are just about to let our house.
We are accidentally landlords.

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

Thanks very much, for any advice

Accidental landlords?? So you accidentally signed tenancy agreement plus all the (many..) other documents needed??  Excuse my cynicism but I humbly doubt that.

Done ANY training in how to be a landlord or landlord/tenant law??

Gotcha22

theartfullodger said:

Gotcha22 said:

Hi

So me and hubby are joint tenants and are just about to let our house.

We are accidentally landlords.

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

Thanks very much, for any advice

Accidental landlords?? So you accidentally signed tenancy agreement plus all the (many..) other documents needed??  Excuse my cynicism but I humbly doubt that.

Done ANY training in how to be a landlord or landlord/tenant law??

No, I will put it with the agent and pay the management fees.

I've not got that far yet, I've not completed on the new house or moved out, or redecorated, had the electrics replaced, the gas checks or anything. What I meant was, we were selling, then the chain collapsed, I didn't want to lose the new house so we put ours on a buy to let after having some basic chats with the estate agent and having rental valuations for the mortgage company. 

Thanks for the replies,
I was hoping for the tax advice so thanks 

anselld

It is a three step process to convince the tax man ...

   (1)  Move from joint tenants to tenants in common

   (2)  Specify split via deed of trust

   (3)  Submit Form 17 to HMRC to confirm income split in line with ownership.

All three steps must be completed in advance, it cannot be done retrospectively.

You can change the %split at a later date with an updated deed of trust, eg prior to selling. 

Gotcha22

anselld said:

It is a three step process to convince the tax man ...

   (1)  Move from joint tenants to tenants in common

   (2)  Specify split via deed of trust

   (3)  Submit Form 17 to HMRC to confirm income split in line with ownership.

All three steps must be completed in advance, it cannot be done retrospectively.

You can change the %split at a later date with an updated deed of trust, eg prior to selling. 

Thanks very much anselid.
 The conveyancer said its easy and I should do the land registry forms myself.... 

It is a simple process you can do yourself to be honest.

It is a form SEV1 from the land registry which needs to be filled in.

Another online search suggests form  RX1. Would you know please to save a long call with land registry tomorrow. Form SEV1 seems very basic.

Thanks very much

Dazed_and_C0nfused

You should also read up on expenses which are allowable for tax purposes.

The rules for these, primarily around finance costs such as mortgage interest, mean HMRC's view of your profit could be totally different to what you think your profit is.

You will both need to register for Self Assessment and complete tax returns each year.  Assuming the rental starts in the current tax year the first return will need to be completed by 31 January 2024.

kerrick

Dazed_and_C0nfused said:

You should also read up on expenses which are allowable for tax purposes.

The rules for these, primarily around finance costs such as mortgage interest, mean HMRC's view of your profit could be totally different to what you think your profit is.

You will both need to register for Self Assessment and complete tax returns each year.  Assuming the rental starts in the current tax year the first return will need to be completed by 31 January 2024.

Would they both still need to do an SA return if for one of them the BTL was their only income and their share of income was below the £12570 tax free allowance?

ashe

theartfullodger said:

Gotcha22 said:

Hi

So me and hubby are joint tenants and are just about to let our house.
We are accidentally landlords.

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

Thanks very much, for any advice

Accidental landlords?? So you accidentally signed tenancy agreement plus all the (many..) other documents needed??  Excuse my cynicism but I humbly doubt that.

Done ANY training in how to be a landlord or landlord/tenant law??

It's a term in the mortgage industry 

"Circumstances often change, resulting in the need for a house move. Homeowners may decide to move in with a new partner. A job opportunity may require moving to a new location. A new baby may mean your current home becomes unsuitable. The natural next step would be to sell up and move on but unfortunately that’s not always as easy as it sounds.

Rather than staying put, many homeowners decide to turn their home into a rental property, using the rent to pay the monthly mortgage repayments and freeing them up to make their next move.

These landlords who find themselves in the rental market not necessarily through choice but rather through necessity are known as accidental landlords."

Gotcha22

Dazed_and_C0nfused said:

You should also read up on expenses which are allowable for tax purposes.

The rules for these, primarily around finance costs such as mortgage interest, mean HMRC's view of your profit could be totally different to what you think your profit is.

You will both need to register for Self Assessment and complete tax returns each year.  Assuming the rental starts in the current tax year the first return will need to be completed by 31 January 2024.

I'm trying really hard to keep income less than 50k. As I would like my little one to keep her child allowance. I know I'm not logical, but that bit really upset me. After being stretched and hammered on 2nd rate SDLT, and income tax. I really felt this was unjust, was stealing from a child and made me wish we had just sold this house.  But our buyers mortgage declined. So no choice if we still wanted to move. 

I know this isnt really first world problems, and it's all for the little.one in the long run, but this really did illogical tip me over.  So I'm hoping I've read up on everything correctly. I thought, that if your salary was say 45k and rental income 10k, regardless this is 55k income and then you offset deductions for your taxable salary. 

But for child allowance you would be earning 55k, can offset pension contributions as long as not AVCs but that's how it's worked out.

Thanks so much for your reply

Gotcha22

Gotcha22 said:

Dazed_and_C0nfused said:

You should also read up on expenses which are allowable for tax purposes.

The rules for these, primarily around finance costs such as mortgage interest, mean HMRC's view of your profit could be totally different to what you think your profit is.

You will both need to register for Self Assessment and complete tax returns each year.  Assuming the rental starts in the current tax year the first return will need to be completed by 31 January 2024.

I'm trying really hard to keep income less than 50k. As I would like my little one to keep her child allowance. I know I'm not logical, but that bit really upset me. After being stretched and hammered on 2nd rate SDLT, and income tax. I really felt this was unjust, was stealing from a child and made me wish we had just sold this house.  But our buyers mortgage declined. So no choice if we still wanted to move. 

I know this isnt really first world problems, and it's all for the little.one in the long run, but this really did illogical tip me over.  So I'm hoping I've read up on everything correctly. I thought, that if your salary was say 45k and rental income 10k, regardless this is 55k income and then you offset deductions for your taxable salary. 

But for child allowance you would be earning 55k, can offset pension contributions as long as not AVCs but that's how it's worked out.

Thanks so much for your reply

And I need to set it up correctly now as it's a 5 year tie in. Thanks all