Back to Back Letting for personal use tax question?

Hi Simon,

You are likely to be correct and have to pay High Rate Tax on your rental income as you can’t offset the cost of your main residence.

However it would be wrong to assume this or what your option may be at this stage as we don’t really know anything about your circumstances.

Please see our tax planning page and free tutorials here >> https://www.property118.com/tax/

You may then need a consultation with Mark if you think it is appropriate after reading up.

My circumstance is i earn at the top rate of tax. I own a property that is now too small (additional child) and plan was to rent our place and rent another with an extra bedroom. The problem however is i would pay 40% on my rental income that i planned to pay most of the new rent. I am sure there are ideas to work around this. Perhaps get my tenant to pay my landlord directly or using a company to net out the rental. I imagine 100s thousands are doing something as in london especially renting out existing and then renting a new property is more often the norm. Maybe i am the only one thinking about the tax question.

Would be interested to know but I suspect you can’t. For example if you receive bank interest it is taxable but interest you pay such as personal overdraft or card charges is not deductible…

If there is a way around this I would like to know too.

Sorry, but I think you will have to pay the tax.

The ideas you have suggested seem like evasion at worst, abuse at best which is covered by GAAR legislation.
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One option would be to setup a Ltd Co. to receive the rents and leave the funds in the Co. if you are not desperate for the money.

You can squeeze out tax free dividends of just 2K per year (unless you receive divis from elsewhere), pay yourself tax-free mileage @ 40p per mile etc. Then when you become a basic rate tax payer you could start paying yourself money from the co. Would work best over short-medium term.
However, all depends on your circumstances and timeframe,

Reply to the comment left by “Jon Delorean” at “08/05/2017 – 22:57“:

Sorry but that doesn’t work. It falls foul of GAAR legislation in terms of alienation of income. If you transfer an income source to a lower tax environment without also transferring the asset HMRC have the power to make you pay back all tax saved and to fine you.
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Can you elaborate? Could he perhaps pay the monies to his spouse for example (listed as a Director) who is a basic rate payer and in order to use up personal allowances in full, as Husband & wife Directors often do.