tax on un-earned income, property rental.
tax on un-earned income, property rental.
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Discussion

steve1

Original Poster:

1,251 posts

260 months

Thursday 25th August 2011
quotequote all
Looking at buying a property to rent out, I understand that any profit from the rental will be liable to tax, what I need to know is, what exactly can you claim against the tax, it will be a cash buy, so no mortgage.

Eric Mc

124,064 posts

281 months

Thursday 25th August 2011
quotequote all
Repairs, maintenance, insurance, rental agent fees, accountant's fees, any day to day costs picked up by the landlord such as light and heat bills, rates, water charges etc.

If the proprty is being let fully furnished, you can make a global 10% Wear and Tear claim based on 10% of the gross rental income less rates and water charges.

Once you start renting out the property, you have three months to notify HMRC that you have commenced receiving rental income. If you already submit Self Assessment tax returns, then the three month limit is not relevant but you obviously need to complete the "Land and Property" section of the Self Assessment return to cover the rental income.

Edited by Eric Mc on Thursday 25th August 09:14

steve1

Original Poster:

1,251 posts

260 months

Thursday 25th August 2011
quotequote all
So I take it, you let them know, they send out the relevant forms, then send you a tax return at the end of the tax year, you fill out all your expenditure, then they hammer you for tax, ( sorry, I mean you then pay a small amount of tax ).
You can tell I've been PAYE for most of my working life, but now retired, ( early ), so just a pension coming in.

Eric Mc

124,064 posts

281 months

Thursday 25th August 2011
quotequote all
steve1 said:
So I take it, you let them know, they send out the relevant forms, then send you a tax return at the end of the tax year, you fill out all your expenditure, then they hammer you for tax, ( sorry, I mean you then pay a small amount of tax ).
You can tell I've been PAYE for most of my working life, but now retired, ( early ), so just a pension coming in.
If you have not been completing a self assessment tax return up to now, you will need to notify them that you will have rental income for the tax year 2011/12 as soon as you can.

They will NOT automatically send you out a blank tax return UNLESS you notify them specifically that you want to complete and return the tax form in PAPER format. They want as many people as possible to submit their returns on-line so, unless you inform them otherwise, they will assume that this is what you will be doing.


Once you have notified them, they will issue you with a "Notice to Make a Self Assessment Tax return", usually in January.
You will be required to submit the 2011/12 tax return by 31 January 2013 and you will also need to pay any tax arising by 31 January 2013.
If you have elected to submit a paper return, you have less time to submit the form. The deadline for the paper 2011/12 tax return will be 31 October 2012. The tax payment date remains at 31 January 2013.

If the overall self assessment tax liability exceeds £2,000, you will also be expected to make two Payments on Account for the following tax year. The fitst of these Payments on Account is also due on 31 January 2013 so that date could work out a bit expensive.
The second Payment on Account is payable on 31 July 2013.

Don't forget that a Self Assessment tax return covers ALL your income from all sources, so any income you received in the tax year that already had tax taken out at source - such as the pension which was taxed under PAYE or bank interest which has 20% taken out by the bank - still needs to be entered on the tax return in addition to the rental income.

Edited by Eric Mc on Thursday 25th August 09:57

bleesh

1,112 posts

270 months

Thursday 25th August 2011
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With my rental property the mortgage interest is a big chunk of expenses that I can use to offset the rental income to reduce the tax liability.

If you have no mortgage, you will make more profit (most likely) and therefore pay more tax.

Just pointing it out like...... smile

Wings

5,893 posts

231 months

Thursday 25th August 2011
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[quote=Eric Mc.

If the proprty is being let fully furnished, you can make a global 10% Wear and Tear claim based on 10% of the gross rental income less rates and water charges.

Edited by Eric Mc on Thursday 25th August 09:14

[/quote]

The above is only correct if in the very, very unusual case that the landlord pays both the council tax and water rates, It is usually the case that the tenant/s pay the above charges, therefore the 10% allowance is just deducted from the gross rental payments received by the landlord.

As both a residential landlord and a person in retirement, one that has been submitting online Self Assessments for several years now, my advice to the OP would be, that he claims for every trivial and expenditure he incurs, and for the same being quite prepared to defend with HMR&C those expenses.

Lastly, ALL expenses incurred in the management of one’s rental property/ies, including vehicle fuel, telephone charges should be and can be claimed for.



pano amo

814 posts

252 months

Thursday 25th August 2011
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I want to to transfer ownership fully to my wife for a flat we rent out. Currently its in both our names and my wife is not working now nor will she be for another 3-4 years. I believe by transferring into her name less tax would then need to be paid? (I probably need proper advice on this..)

Eric Mc

124,064 posts

281 months

Friday 26th August 2011
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pano amo said:
I want to to transfer ownership fully to my wife for a flat we rent out. Currently its in both our names and my wife is not working now nor will she be for another 3-4 years. I believe by transferring into her name less tax would then need to be paid? (I probably need proper advice on this..)
You most definitely do - both of a tax and legal nature.

pano amo

814 posts

252 months

Friday 26th August 2011
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Eric Mc said:
You most definitely do - both of a tax and legal nature.
So do I have to talk to a tax accountant and a solicitor?

scotal

8,751 posts

295 months

Friday 26th August 2011
quotequote all
pano amo said:
I want to to transfer ownership fully to my wife for a flat we rent out. Currently its in both our names and my wife is not working now nor will she be for another 3-4 years. I believe by transferring into her name less tax would then need to be paid? (I probably need proper advice on this..)
Is it mortgaged, have you checked your lender will allow it?

Eric Mc

124,064 posts

281 months

Friday 26th August 2011
quotequote all
pano amo said:
Eric Mc said:
You most definitely do - both of a tax and legal nature.
So do I have to talk to a tax accountant and a solicitor?
I would.

Kudos

2,674 posts

190 months

Saturday 27th August 2011
quotequote all
pano amo said:
I want to to transfer ownership fully to my wife for a flat we rent out. Currently its in both our names and my wife is not working now nor will she be for another 3-4 years. I believe by transferring into her name less tax would then need to be paid? (I probably need proper advice on this..)
If nothing else, certainly a stamp duty issue arises

Kudos

2,674 posts

190 months

Saturday 27th August 2011
quotequote all
steve1 said:
Looking at buying a property to rent out, I understand that any profit from the rental will be liable to tax, what I need to know is, what exactly can you claim against the tax, it will be a cash buy, so no mortgage.
Is there a mortgage on your main residence? If so, you'd be better paying this off and taking out a mortgage on the rental as has been discussed, interest payments can be deducted. Can't be done for your main residence, so best swapping that round

steve1

Original Poster:

1,251 posts

260 months

Saturday 27th August 2011
quotequote all
Kudos said:
Is there a mortgage on your main residence? If so, you'd be better paying this off and taking out a mortgage on the rental as has been discussed, interest payments can be deducted. Can't be done for your main residence, so best swapping that round
No mortgage at all.

Wings

5,893 posts

231 months

Sunday 28th August 2011
quotequote all
Kudos said:
Is there a mortgage on your main residence? If so, you'd be better paying this off and taking out a mortgage on the rental as has been discussed, interest payments can be deducted. Can't be done for your main residence, so best swapping that round
It can be done on main residence, possibly easier and cheaper type of mortgage interest rates. It is the reason for raising the loan/mortgage that dictates whether the interests on the loan is/are tax allowable, and not what property the loan/mortgage is raised against.

As for the OP transfering the property into the sole name of his wife, i was able to ADD the wife's name to a number of rental properties, simply by writing to the Land Registry requesting the same. My advice to the OP would be to speak to both the Land Registry and HM Revenue and Customs.

Lastly, how the rental profits are divided out between OP and his partner, and if the OP's wife solely manages the property, then there is nothing to stop the OP allowing her to receive all, or the largest portion of the rental profits.

Wings

5,893 posts

231 months

Sunday 28th August 2011
quotequote all
Kudos said:
Is there a mortgage on your main residence? If so, you'd be better paying this off and taking out a mortgage on the rental as has been discussed, interest payments can be deducted. Can't be done for your main residence, so best swapping that round
It can be done on main residence, possibly easier and cheaper type of mortgage interest rates. It is the reason for raising the loan/mortgage that dictates whether the interests on the loan is/are tax allowable, and not what property the loan/mortgage is raised against.

As for the OP transfering the property into the sole name of his wife, i was able to ADD the wife's name to a number of rental properties, simply by writing to the Land Registry requesting the same. My advice to the OP would be to speak to both the Land Registry and HM Revenue and Customs.

Lastly, how the rental profits are divided out between OP and his partner, and if the OP's wife solely manages the property, then there is nothing to stop the OP allowing her to receive all, or the largest portion of the rental profits.

BladeMonster

51 posts

168 months

Tuesday 30th August 2011
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If the wife is added jointly to the other properties, this has implications in the event of selling, remortgaging/securing finance against the properties, divorce, separation and potentially division of marital finances.

Eric Mc

124,064 posts

281 months

Tuesday 30th August 2011
quotequote all
BladeMonster said:
If the wife is added jointly to the other properties, this has implications in the event of selling, remortgaging/securing finance against the properties, divorce, separation and potentially division of marital finances.
As I said earlier, get good legal and tax advice.

Toro Rosso

187 posts

171 months

Wednesday 31st August 2011
quotequote all
Kudos said:
If nothing else, certainly a stamp duty issue arises
certainly - no.
possibly - yes.

Eric Mc

124,064 posts

281 months

Wednesday 31st August 2011
quotequote all
Toro Rosso said:
Kudos said:
If nothing else, certainly a stamp duty issue arises
certainly - no.
possibly - yes.
Ahh - the subtleties of the English language. What is absolutely certain is that Capital Gains Tax ISSUES do arise. What is not certain at all is whether any actual CGT is payable.

The point is a valid one - people should be aware of any POTENTIAL CGT issues whenever disposing of land and buildings. The only time when CGT need not be considered is when the property was only EVER used as your main residence (and even then there are circumstances where CGT might raise its ugly head). In all other circumstances, people should check the CGT situation.