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Avoiding Income Tax On Rent

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Hi - I will be shortly letting out my house as the current occupiers have decided to move on. Does anyone have any accounting experience which can explain what needs to be down to minimise giving the profit to Gordo's money drain by using my stay-at-home wife's tax allowance ?

I will pre-empt any potential attacks. I'm not a buy-2-letter and I rent too (so I'm not entirely evil).

Thanks.

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Hi - I will be shortly letting out my house as the current occupiers have decided to move on. Does anyone have any accounting experience which can explain what needs to be down to minimise giving the profit to Gordo's money drain by using my stay-at-home wife's tax allowance ?

I will pre-empt any potential attacks. I'm not a buy-2-letter and I rent too (so I'm not entirely evil).

Thanks.

Put the tenancy in your wifes name, then you qualify for her tax allowance and 20% tax rate

Also all mortgage interest payment (not capital repayments) are deductable plus expenses (LA fees, gas certs etc.) And repairs but not refurbishment, Furnished property also a allows for a 10% of the annual rent depreciation charge, but most people just claim it anyway as you just need to leave a table or something to call it furnished

Hope that helps

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Hahaha, ignore the advice above, do it East European way.

Rent your 3 bed house to Mr.Kowalski for 500 quid then Mr. Kowalski rents out all the rooms to his fellow travellers at 400 quid per room. He looks after your property, collects the money, throws them out with no notice, lives there for free plus gets few hundred for his troubles, you make a grand and pay tax on 500. Say no more. Hahaha thats how you run HMO.... and as a landlord you are always in the clear.

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Put the tenancy in your wifes name, then you qualify for her tax allowance and 20% tax rate

Also all mortgage interest payment (not capital repayments) are deductable plus expenses (LA fees, gas certs etc.) And repairs but not refurbishment, Furnished property also a allows for a 10% of the annual rent depreciation charge, but most people just claim it anyway as you just need to leave a table or something to call it furnished

Hope that helps

Thanks for this. Are you sure I don't have to transfer ownership of the property to my wife as well?

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Thanks for this. Are you sure I don't have to transfer ownership of the property to my wife as well?

Nope, as long as she is the legal LL (i.e the one that counter signs the AST) it is all above board provided the house is in both your names or you are married. There is no law against using her tax allowance

The letting agent will be required to tell HMRC about LL affairs but they only refer the LL not the owner.

Edited by Matt Henson

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Sorry Matt, I don't agree. What you suggest does not work.

And when you eventually come to sell the house, and YOU claim PPR exemption HMRC will want to know why YOU have not been paying tax on your rental income.

Does your wife have any share in the ownership of the property currently?

Be careful about losing PPR relief against CGT if you mess about. Go talk to a good solicitor who understands your circumstances on the back of a face-to-face meeting and effect a trust deed. There is too much at stake to get this wrong.

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Sorry Matt, I don't agree. What you suggest does not work.

And when you eventually come to sell the house, and YOU claim PPR exemption HMRC will want to know why YOU have not been paying tax on your rental income.

Does your wife have any share in the ownership of the property currently?

Be careful about losing PPR relief against CGT if you mess about. Go talk to a good solicitor who understands your circumstances on the back of a face-to-face meeting and effect a trust deed. There is too much at stake to get this wrong.

Telometer is right here BUT it is very easy to transfer ownership plus any attendant mortgage to your wife tax free, provided you get the mortgage company's approval (also should easily be obtained). And it won't matter if she divorces you; she'll get all your assets anyway.

PPR exemption is easy to retain too provided you have lived in it for a few years or sell within 3 years of renting it out

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Sorry Matt, I don't agree. What you suggest does not work.

And when you eventually come to sell the house, and YOU claim PPR exemption HMRC will want to know why YOU have not been paying tax on your rental income.

You cannot claim PPR relief on a house for a period that has been rented out. You can only nominate as your PPR a house that is "available for you use".

(and in case you were going to try otherwise, a husband and wife must nominate the same PPR)

tim

Edited by tim123

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You cannot claim PPR relief on a house for a period that has been rented out. You can only nominate as your PPR a house that is "available for you use".

(and in case you were going to try otherwise, a husband and wife must nominate the same PPR)

tim

Unless you are MPs.

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Unless you are MPs.

The MPs didn't do anything that a normal person couldn't do

If you have two houses which are both available for your use you can switch your PPR between them so as to make use of the "last three years" rule to avoid some (or all) CGT.

Anybody can do this.

The flaw here is that the second house is rented out to a third party and not "available for use" by the owner

tim

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Telometer is right here BUT it is very easy to transfer ownership plus any attendant mortgage to your wife tax free, provided you get the mortgage company's approval (also should easily be obtained).

NO, NO, and NO. OP will lose entitlement to PPR relief (covers years of residence plus 3) and Letting relief (covers a further 40k of gains). He is entitled to PPR relief because he owned and lived in the house. Wife never owned and lived in house at same time. So she has no entitlement to PPR relief.

You cannot claim PPR relief on a house for a period that has been rented out. You can only nominate as your PPR a house that is "available for you use".

Not entirely true and full of misunderstandings. See above.

In conclusion do NOT try to sort this out DIY. Expect to spend 1k or so with a solicitor.

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NO, NO, and NO. OP will lose entitlement to PPR relief (covers years of residence plus 3) and Letting relief (covers a further 40k of gains). He is entitled to PPR relief because he owned and lived in the house. Wife never owned and lived in house at same time. So she has no entitlement to PPR relief.

Not entirely true and full of misunderstandings. See above.

In conclusion do NOT try to sort this out DIY. Expect to spend 1k or so with a solicitor.

I have actually been in this situation and as I say to lose so much PPR relief that you wind up paying CGT is quite hard. I bought for £135k, sold for £435k 8 years later, rented out for 2.5 years in the middle and still managed to avoid CGT (had I sold anything else that year I may have been up the swanny though - there was an £8k CGT exemption, and selling the shed, greenhouse, bath, and kitchen units and some custom made venetian blinds for £6k each helped too...............only joking.......).

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I have actually been in this situation and as I say to lose so much PPR relief that you wind up paying CGT is quite hard. ...............only joking.......).

Utter nonsense. Take four very similar scenarios, and by clever planning can save yourself a lot of tax. Or mess it up totally and end up with a huge tax bill.

January 2000, buy house for 100k in your name. January 2007 move out and let it, Sell it January 2014 for £240k, tax = nil; sell it for 380k, tax = £7,200.

January 2000, buy house for 100k in your name. January 2007 move out and let it and give half to your wife. Sell it January 2014 for 240k, tax cost = £12,600; sell it for 380k, tax cost = £25,200.

January 2000, buy house for 100k in your name. January 2007 move out and let it and give it to your wife. Sell it January 2014 for 240k, tax cost = 25,200; sell it for 380k, tax cost = £50,400.

January 2000, buy house for 100k in your name. January 2006 give half to your wife. January 2007 move out and let it. Sell it January 2014 for 240k, tax cost = £nil; sell it for 380k, tax cost = £nil.

Edited by Telometer

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From HMRC manual

"CG65310 - Private residence relief: separation, divorce or dissolution of civil partnership: legal/equitable interests

The person in whose name a dwelling house is registered may or may not be the sole beneficial owner. It was held in Hazell v Hazell (a 1972 family law case) that if a wife contributes directly or indirectly in money or moneys worth towards the initial cost, or towards mortgage instalments, she acquires, in equity, an interest in the matrimonial home proportional to those contributions. Similarly, a husband who contributes directly or indirectly also acquires in equity an interest in the matrimonial home proportional to those contributions, even though the wife alone is registered as the legal owner.

In these circumstances you should treat the spouse who is the legal owner as holding the property as a bare trustee for each of them as beneficiaries to the extent of their contributions. The term `bare trustee' is explained at CG34320+. You should treat the husband and wife for Capital Gains Tax as absolute owners of shares in the property in proportion to their contributions."

Now of course the practice in the family courts nowadays, except in very short marraiges, is to value each persons contributions to the estate in divorce equally unless one of the parties can demonstrate exceptional talent, or having bought a lot to the party at the outset. So my guess is that in most cases even if Wifey/hubby is not on the deeds she is entitled to half from the day you move in.

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Not entirely true and full of misunderstandings. See above.

I don't agrere.

What I said was 100% correct

The extra three years relief which you get because the property was at one time your PPR (during which time the property may be rented) is not PPR relief. It is a different relief.

tim

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