Who declares the taxable income?

by Readers Question

10:48 AM, 31st December 2014
About 4 years ago

Who declares the taxable income?

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Who declares the taxable income?

All aspects of this question relate to the UK. Earlier this year I bought a terraced house which I renovated and have just let out. The house (according to the deeds) is fully in my name, I own the house.

Other than the rent from this house I don’t have an income, I’m a ‘homemaker’ and mother. I live with my boyfriend with whom I have joint ownership (50-50) of our home which, before buying my terrace, was mortgage free. My boyfriend works full-time and pays tax.

Also, part of the money used to purchase and renovate my buy to let has been raised against the property that we jointly own.

The money borrowed on our property was significantly less that 50% of the property’s value and so could be argued to have been raised against my 50% of the house.

My question is, does any of the income from the buy to let need to be declared by my boyfriend as income or can I declare all of the income as mine ?

Many thanks

Suzannetax



Comments

Neil Patterson

10:57 AM, 31st December 2014
About 4 years ago

Ah Hmm I thought this would be easy at first glance as the property is in your sole name so it is your taxable income.

However you may want to claim tax relief on the interest only portion of the borrowing against your main residence for the business purpose. This though is in joint names, and if your try to claim tax relief does this then drag your partner into to tax equation? Then is it worth doing?

Please remember that any help you do get should not be considered qualified and insured tax advice and generally I find employing a good accountant saves as much money as they cost.

Sam Addison

11:40 AM, 31st December 2014
About 4 years ago

If all the rent allocated to you would not mean you paying tax then there is no benefit in trying to offset the interest on your residence against income to reduce tax, As Neil says, with the BTL in your sole name, all profit can be allocated to you.
Don't forget to keep details of the renovations (invoices etc.) safe as you may be able to claim these as betterment if you wish to sell at some stage which could reduce liability to Capital Gains Tax.

matchmade

12:08 PM, 31st December 2014
About 4 years ago

I too am not an accountant, but the direct answer to your question is that you can claim all of the rental income is yours.

However things get more complicated if you try and claim the mortgage interest on your main house against the rental income on the second house. You will only get a 100% deduction if the mortgage is in your sole name and you alone are responsible for paying the mortgage interest and do in fact do so from your own bank account.

If the mortgage is held jointly, then I suspect HMRC will only allow you at best to claim 50% of the mortgage interest against the rent, and again you will need to demonstrate that you are paying your proportionate share of the interest.

I also suggest you need to record formally where the capital for the rental purchase came from. If you and your partner split up in the future, he could claim a share of the rental house's current capital value on the basis that he remains responsible for 50% of the debt on your main house. If his share of the mortgage debt was gifted to you in order to buy the rental property, then you need something in writing and a paper trail to prove this.

There's also capital gains tax to consider when you sell the rental house. If your boyfriend contributed capital towards the purchase of the house without declaring it as a gift to you, then HMRC might argue that he is effectively a co-investor in the property despite what it says on the deeds, and tax him accordingly. This could be to your advantage however as you will both then receive a CGT annual allowance.

Suzanne McCann

15:19 PM, 31st December 2014
About 4 years ago

Many thanks for your help.

In addition to the key issue of whether the income from my property is solely mine you have raised some other interesting points for me to consider.

Happy New Year !

Howard Reuben CeMap CeRER

15:49 PM, 31st December 2014
About 4 years ago

And I will also start off by stating I am not a tax adviser / accountant, but I am a BTL mortgage Broker and I can state that lenders are looking at SA302's for self assessed declarations of rental income. The property / rental income is a separate section on a tax calculation and is therefore a highlighted section on a SA302. The lenders can on random occasions query why no rental income / profit is being shown for BTL'ers who clearly rent out property and receive an income. I strongly recommend to all BTL'ers who are looking for new mortgages that their HMRC returns are fully declared.

Suzanne McCann

20:03 PM, 31st December 2014
About 4 years ago

Reply to the comment left by "Howard Reuben" at "31/12/2014 - 15:49":

The money to purchase my BTL property was a combination of withdrawing overpayments made on the mortgage for the home I share with my boyfriend and a further advance on this mortgage. This mortgage is with one of the largest high street building societies and they were happy with this arrangement.

All the mortgage payments are being made from my bank account. So far these have been from money set aside for the refurbishment although from next month the payments will be from the rent money I will be receiving.

Because this mortgage was originally, nearly 20 years ago, taken out based on my partner and my earnings with the property (our home) as collateral I guess that the building society will not be checking my HMRC returns for BTL income.

Getting the mortgage in the way I did seemed easiest at the time although there is an unfortunate association between my landlady activities and my boyfriend via the mortgage on this jointly owned property.

Puzzler

14:02 PM, 1st January 2015
About 4 years ago

Reply to the comment left by "Tony Atkins" at "31/12/2014 - 12:08":

"However things get more complicated if you try and claim the mortgage interest on your main house against the rental income on the second house. You will only get a 100% deduction if the mortgage is in your sole name and you alone are responsible for paying the mortgage interest and do in fact do so from your own bank account.

If the mortgage is held jointly, then I suspect HMRC will only allow you at best to claim 50% of the mortgage interest against the rent, and again you will need to demonstrate that you are paying your proportionate share of the interest"

I don't believe this is correct - the mortgage interest can be offset in total provided it was taken out for the purchase of the BTL. Whoever receives the income should declare it. However ownership of the BTL should that become an issue would almost certainly be shared. You cannot assert that the mortgage is on "your half", that's not how joint property ownership works, the mortgage comes off first and is therefore joint.

It is worth recording and declaring it in order to build up the tax loss which can be carried forward as at some stage you may become a tax payer or the rent exceed your personal allowance.

Michael Barnes

21:14 PM, 1st January 2015
About 4 years ago

I would agree with Sam: if the profit excluding interest payments (plus any other investment income you might get) is less than the tax-free allowance, then there is no point in worrying about it.

Otherwide I would suggest:
1. Phone HMRC, ask to speak to a tax inspector, and see what they say.
If you like what they say, the get them to put it in writing to you.
2. If you don't like what HMRC say, then talk to an accountant that specialises in property.


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