Tax Questions on Rental Properties

[ukrv]

Hi Guys

Ive read the forum and can only find bits of info, so can anyone help please......

In December 2005 my wife and I part-exchanged our home (£185,000) for 2 apartments of £119,999 each (with £65,000 BTL per apartment).

One property completed on December 21st (with tenants in on January 22nd @ £525pcm) and the other in late-February 2006 (with tenants straight in @ £550pcm).

The BTL mortgages were set-up in joint names 50/50.

The solicitor "SHOULD" have registered the apartments as 90% equity to my wife and 10% to me - I say "should" as we still dont know what they have done (they have been really bad and we are in the process of lodging a complaint about them).

The reason for this 90/10 split is that my wife doesnt work.

Anyway, assuming the whole thing was set-up correctly, what % should we be using to make tax deductions ?

As the properties are let unfurnished, can I only deduct BTL interest (what method to calculate to April 5th 2006), letting agent fees and insurance?

BTW, in case it makes a difference, we left the UK on Jan 5th to tour the USA and Canada and won't return until April 28th 2007 - we wont have any other income during this time.

Thank You !!
Paul

[Tax Accountant]

Hi Guys

Ive read the forum and can only find bits of info, so can anyone help please......

In December 2005 my wife and I part-exchanged our home (£185,000) for 2 apartments of £119,999 each (with £65,000 BTL per apartment).

One property completed on December 21st (with tenants in on January 22nd @ £525pcm) and the other in late-February 2006 (with tenants straight in @ £550pcm).

The BTL mortgages were set-up in joint names 50/50.

The solicitor "SHOULD" have registered the apartments as 90% equity to my wife and 10% to me - I say "should" as we still dont know what they have done (they have been really bad and we are in the process of lodging a complaint about them).

The reason for this 90/10 split is that my wife doesnt work.

Anyway, assuming the whole thing was set-up correctly, what % should we be using to make tax deductions ?

As the properties are let unfurnished, can I only deduct BTL interest (what method to calculate to April 5th 2006), letting agent fees and insurance?

BTW, in case it makes a difference, we left the UK on Jan 5th to tour the USA and Canada and won't return until April 28th 2007 - we wont have any other income during this time.

Thank You !!
Paul

It appears that you should have bought the property as ''Tenants In Common'' and not as ''Joint Tenants''. Even if you bought as ''Tenants in common'', the ownership shares are normally 50:50 unless recorded otherwise by a Deed of Trust.

If you own the property in equal shares, all income from property should be declared equally between the two of you.

If the Deed of Trust records a different share of ownership, you should complete a specific form to notify the unequal shares to the Inland Revenue and then declare the rental profits in those unequal shares.

In the short period of ownership until 5 April 2006, I don't think this should make much difference as the net profit will not be all that much. Thereafter, neither of you have any income until April 2007 and therefore the current 50:50 position should be advantageous to both of you.

I suggest that you get your solicitor to change your ownership to ''Tenants in common'' if this is not already the case. However, you should leave the ownership in equal shares until say 6 April 2007 from which date you could change the ownership to 90:10 as you wish by a simple Deed of Trust.

As far as the mortgage interest is concerned, you should obtain a certificate of loan interest from the lender for the tax year to 5.4.2006 and claim this amount in your expenses. In the absence of such certificate, you could estimate the interest upto 5 April 2006 on any reasonable basis or time-apportion basis. You should also be able to claim all other normal expenses except the furnishings wear and tear allowance.

Ramnik

[steveandbee]

Forgive me for butting into this thread but if I were to complete the Deed of Trust with my solicitor for 99% (wife)/1% (myself) for the house we're renting how does the Tax get deducted?

What I mean by this is the rent paid to us by the Letting Agent gross and we declare it at the end of the tax year? Or will the rent be paid to us after the Tax has been deducted? If the latter case how will they know that we have a 99%/1% split? Forgive me if this is a stupid question.

[Pov1]

My understanding is that you can elect as tenants in common to split up to 99% to 1% if you so wish and apportion profit/tax liability accordingly with your spouse when you submit your self assessments. Do however check Inland Revenue web site and urgently complete notice of declaration of beneficial interest in joint property and income making this election and serve same on your tax office as otherwise you may find that they may not accept the way you wish to apportion your shares until after you do that. Perhaps also check with an accountant!

[Tax Accountant]

Forgive me for butting into this thread but if I were to complete the Deed of Trust with my solicitor for 99% (wife)/1% (myself) for the house we're renting how does the Tax get deducted?

What I mean by this is the rent paid to us by the Letting Agent gross and we declare it at the end of the tax year? Or will the rent be paid to us after the Tax has been deducted? If the latter case how will they know that we have a 99%/1% split? Forgive me if this is a stupid question.

You are supposed to calculate your rental profits yourself after the end of the tax year. All income and all expenses should be apportioned in the proportion in which the beneficial interest in the property is held by you and your wife. Your wife's share of the income and expenses are declared in her self assessment tax return. Likewise, your share of the income and expenses are declared in your self-assessment tax return. You will both then be taxed according to the amounts declared in your respective tax returns.

All rental profits are declared in the additional pages known as 'Land and Property' and these are attached to the self-assessment tax return.

You and your wife need to have a Trust Deed drawn up, preferrably by a solicitor. You should also complete the appropriate form ( I think this is called Form 15 or 17?) and declare the shares in which the property is owned by you and your wife. However, under self-assessment, all income is declared by taxpayers themselves and therefore the declaration will presumably only serve as no more than a reference.

If the ownership shares changes again at a later date, you are advised to have this recorded by another Trust Deed.

Ramnik

[Tax Accountant]

You are supposed to calculate your rental profits yourself after the end of the tax year. All income and all expenses should be apportioned in the proportion in which the beneficial interest in the property is held by you and your wife. Your wife's share of the income and expenses are declared in her self assessment tax return. Likewise, your share of the income and expenses are declared in your self-assessment tax return. You will both then be taxed according to the amounts declared in your respective tax returns.

All rental profits are declared in the additional pages known as 'Land and Property' and these are attached to the self-assessment tax return.

You and your wife need to have a Trust Deed drawn up, preferrably by a solicitor. You should also complete the appropriate form ( I think this is called Form 15 or 17?) and declare the shares in which the property is owned by you and your wife. However, under self-assessment, all income is declared by taxpayers themselves and therefore the declaration will presumably only serve as no more than a reference.

If the ownership shares changes again at a later date, you are advised to have this recorded by another Trust Deed.

Ramnik