Rental Income, taxation if your profit is less than 5K

[Luke Farr]

Ok. This is the situation, Hopefully someone will be able to set me straight. My wife and I own a property in the UK. We are planning to move to Ecuador on a volunteer program. Our living expenses will be covered by the rent from our flat here. Is there anyway that the rental income can somehow be classed as "income" and not "unearned income". Between us we will both be under our threshold ever year if we both register as self employed. If we have to claim it as "unearned income" then we will automatically lose 25% in this tax and not be able to earn any of our allowed non taxable income.

Any ideas? Can my wife manage the property? Charge me a letting fee and put this through as declared income but she would remain under her threshold?

[Tax Accountant]

Ok. This is the situation, Hopefully someone will be able to set me straight. My wife and I own a property in the UK. We are planning to move to Ecuador on a volunteer program. Our living expenses will be covered by the rent from our flat here. Is there anyway that the rental income can somehow be classed as "income" and not "unearned income". Between us we will both be under our threshold ever year if we both register as self employed. If we have to claim it as "unearned income" then we will automatically lose 25% in this tax and not be able to earn any of our allowed non taxable income.

Any ideas? Can my wife manage the property? Charge me a letting fee and put this through as declared income but she would remain under her threshold?

For all intensive purposes, there is no distinction between earned and unearned income in using personal allowances or the rates at which it is taxed.

Assuming you are both British or commonwealth citizens, you will be allowed to use your personal allowances against your rental income and any rent in excess of personal allowances will be taxed at the starting rate of 10% and then 22% and then 40%, depending on how much falls into each of the tax bands.

You cannot register as self employed as rental income is generally not a business for tax purposes unless you are running a bed and breakfast or a furnished holiday lettings business with your property.

Your wife will be with you in Ecuador with you and therefore it would be difficult for you to justify any payments to her for managing the property.

I assume that you both own the property. If so, the net rental income (after deducting allowable expenses) will be equally divided between the two of you and assessed to tax according to your personal circumstances.

Ramnik