Tax options for house rental

Andrew1981

Hi, hoping someone can advise. 

My wife and I both own equal shares in our house. We may move abroad for work (but would keep UK residency) for 2-3 years. If we did, I'd earn apx 60k/year,my wife nothing. 

We'd want to rent our house out, we'd get apx £2700/month.

Would I be right in assuming that half of that income would be my wife's, and so the vast majority would be taxed at 0% as its under the personal allowance?

Would the interest element of the mortgage payments give us the 20% tax credit even thought we aren't 'btl landlords', more accidental landlords?  I assume we can do the other deductibles ie estate agency fees etc as an allowable deduction. I also assume that a transfer of equity isn't really an option to give more of the house to her (and hence 20%) vs my 40%.

Thanks in advance 👍

Jeremy535897

The motive for borrowing to buy your house is irrelevant. You and your wife should get the credit for the interest paid at 20%, in equal shares, just as you will be taxed on the net income (after costs like rental agents' fees, repairs, insurance etc) in equal shares.

You could vary the proportions of the house that you each own, and shift some more income to your wife, but this will be messy with a mortgage. There can be stamp duty issues, and you would have to split the joint tenancy (assuming this is the current ownership), make it a tenancy in common held in unequal shares, and file a Form 17.

Are you sure you will remain UK resident for tax purposes?

purdyoaten2

Indeed - 

https://www.gov.uk/government/publications/non-resident-landord-guidance-notes-for-letting-agents-and-tenants-non-resident-landlords-scheme-guidance-notes/what-the-non-resident-landlords-scheme-is#approval-to-receive-rental-income-with-no-tax-deducted

Note the section detailing how rental income may be received without tax deducted. 

InMyDreams

I think the wife would only receive her share of the 20% credit to the extent that she had actually paid tax at (at least) 20%. If the vast majority was under the threshold, she wouldn’t have paid much 20% tax to be credited.

This is the difference between interest being treated as a ‘credit’ rather than as a tax deductible expense.

I think the credit can be carried forward and used in future years, but only if 20% tax is eventually paid (and only if the rental business is still operating).

Similar happens when a landlord’s main income is dividends.

InMyDreams

Plus, if either of you have student loans that you are paying back, don’t forget that you’ll be paying 9% of profits towards those too.

Edit - possibly not your wife if her total income is too low all together.

Andrew1981

Hi,

Many thanks for your advice. We would remain UK residents as its a UK Gov't job and apparently residency is retained. This is according to others who are abroad for the same reason. 

Agree that altering shares in the house would be messy, especially as its for a short period of time. 

No student loans thankfully, but interesting that the 20% can be carried forward by my wife as she will definately be a 20% tax payer when we return.

Thanks again

purdyoaten2

Andrew1981 said:

Hi,

Many thanks for your advice. We would remain UK residents as its a UK Gov't job and apparently residency is retained. This is according to others who are abroad for the same reason. 

Agree that altering shares in the house would be messy, especially as its for a short period of time. 

No student loans thankfully, but interesting that the 20% can be carried forward by my wife as she will definately be a 20% tax payer when we return.

Thanks again

It is my understanding that your wife would NOT be able to avail of the carry forward when she returns to the U.K.  as, presumably, the property will no longer be rented out. This carry forward can only be claimed against future rental liability.

Andrew1981

Ah yes, I missed that line earlier. The rental business would not be operating so couldn't be carried forwards. 

Thanks