First time landlord - general tax questions

[elms]

I am looking for a little bit of advice that will point me in the right direction with regard to self-assessment and tax declaration.
I guarantee that any help and advice I receive will be greatly appreciated.

My wife and I jointly purchased a house, renovated it and our tenant moved in Oct 22nd 2012 – so has been there 3 months.
My wages just take me into the higher rate tax bracket, my wife is a full time mum!

Now I’ve seen a date of 31st Oct mentioned regarding tax-returns but apparently this is extended to 31st Jan if filling in the forms online.

Q1 – Am I correct in that this year’s self-assessment online deadline of Jan 2013 is based on the financial year Apr 2011 -> Apr 2012 and seeing as though my tenant moved in on 22nd Oct 2012 I will do a self-assessment in Jan 2014 for this and do not need to worry about it this year?
Q2 – Obviously I want to pay as little tax as possible on the rental income and so basically want my wife to ‘take’ the income and not me as anything I ‘take’ will be taxed at 40% and what my wife ‘takes’ will be basically tax free (the rental income will be less than 6k PA and so will be well within her tax allowance). So basically my question is can I allocate her to take all of the income or do I need take some or is it basically a 50/50 split?
Q3 – Will my wife also have to declare any rental income via self-assessment?
Q4 – I’ve heard that there are a few things you can claim for and offset against the rent for tax purposes (phone calls, travel expenses, etc?) and that you don’t need any ‘proof’ of these – is this correct and if so are they fixed amounts?
Q5 – Is it worth just getting an accountant to sort all of this out for me…? , I know, I know, some of you will be saying “well if you can’t be bothered to do it yourself then don’t…”. Well I can, it’s just that I’ve never done self-assessment before or anything and it seems a little daunting. I don’t want to get it wrong and owe a load of tax. It is relatively only a small amount of money but, like all of you other landlords, I want to get as much money out of it as I can – I know I worked hard enough renovating the property and want it to be worth my while…

As I stated before, I really do appreciate the time any of you will take in replying to my questions.

Kind regards

[Claymore]

Q1 – Am I correct in that this year’s self-assessment online deadline of Jan 2013 is based on the financial year Apr 2011 -> Apr 2012 and seeing as though my tenant moved in on 22nd Oct 2012 I will do a self-assessment in Jan 2014 for this and do not need to worry about it this year?
Q2 – Obviously I want to pay as little tax as possible on the rental income and so basically want my wife to ‘take’ the income and not me as anything I ‘take’ will be taxed at 40% and what my wife ‘takes’ will be basically tax free (the rental income will be less than 6k PA and so will be well within her tax allowance). So basically my question is can I allocate her to take all of the income or do I need take some or is it basically a 50/50 split?
Q3 – Will my wife also have to declare any rental income via self-assessment?
Q4 – I’ve heard that there are a few things you can claim for and offset against the rent for tax purposes (phone calls, travel expenses, etc?) and that you don’t need any ‘proof’ of these – is this correct and if so are they fixed amounts?
Q5 – Is it worth just getting an accountant to sort all of this out for me…? , I know, I know, some of you will be saying “well if you can’t be bothered to do it yourself then don’t…”. Well I can, it’s just that I’ve never done self-assessment before or anything and it seems a little daunting. I don’t want to get it wrong and owe a load of tax. It is relatively only a small amount of money but, like all of you other landlords, I want to get as much money out of it as I can – I know I worked hard enough renovating the property and want it to be worth my while…

As I stated before, I really do appreciate the time any of you will take in replying to my questions.

Kind regards

1. Yes, you are correct.
2. You can do a declaration to the tax man stating the income benefit belongs to your wife. There might be a specific form - can't remember but someone will advise.
3 Yes.
4. You do need proof of everything.
5. One property, no. Once you've done one return, the next ones are really easy. You get a booklet which tells you what information to put in each box.

[Wight Knight]

Ref Q2.

Probably only a 50/50 split. HMRC will assume a 50/50 split on Joint property, unless you tell them otherwise (HMRC Form 17 I think). BUT there is a catch, the split you declare to the taxman must be the split on the land register entry. So, if you do jointly own it, it will be a 50/50 split, however if you transferred title as 'tenants in common' with an unequal split - you can declare this to the taxman.

Quite a few threads in the tax forum on this for more info.

[isabella]

I am looking for a little bit of advice that will point me in the right direction with regard to self-assessment and tax declaration.
I guarantee that any help and advice I receive will be greatly appreciated.

My wife and I jointly purchased a house, renovated it and our tenant moved in Oct 22nd 2012 – so has been there 3 months.
My wages just take me into the higher rate tax bracket, my wife is a full time mum!

Now I’ve seen a date of 31st Oct mentioned regarding tax-returns but apparently this is extended to 31st Jan if filling in the forms online.

Q1 – Am I correct in that this year’s self-assessment online deadline of Jan 2013 is based on the financial year Apr 2011 -> Apr 2012 and seeing as though my tenant moved in on 22nd Oct 2012 I will do a self-assessment in Jan 2014 for this and do not need to worry about it this year?
Q2 – Obviously I want to pay as little tax as possible on the rental income and so basically want my wife to ‘take’ the income and not me as anything I ‘take’ will be taxed at 40% and what my wife ‘takes’ will be basically tax free (the rental income will be less than 6k PA and so will be well within her tax allowance). So basically my question is can I allocate her to take all of the income or do I need take some or is it basically a 50/50 split?
Q3 – Will my wife also have to declare any rental income via self-assessment?
Q4 – I’ve heard that there are a few things you can claim for and offset against the rent for tax purposes (phone calls, travel expenses, etc?) and that you don’t need any ‘proof’ of these – is this correct and if so are they fixed amounts?
Q5 – Is it worth just getting an accountant to sort all of this out for me…? , I know, I know, some of you will be saying “well if you can’t be bothered to do it yourself then don’t…”. Well I can, it’s just that I’ve never done self-assessment before or anything and it seems a little daunting. I don’t want to get it wrong and owe a load of tax. It is relatively only a small amount of money but, like all of you other landlords, I want to get as much money out of it as I can – I know I worked hard enough renovating the property and want it to be worth my while…

As I stated before, I really do appreciate the time any of you will take in replying to my questions.

Kind regards

Hi
I have several year's experience in the area,but I'm still learning. I'm sure others will chip in and help.
*
Q1. I think you are correct. The first self assessment you need will be for the 2012/13 tax year.
*
Q2. This will depend on the ownership of the
property. The best way of achieving this is for your wife to hold the property in her sole name. If it's in joint names as joint tenants, it may be impossible. If the ownership is tenants-in-common, you may be able to allocate a certain share each in the house and so reduce your tax liability by that method. Or you could transfer the house just to her name. Clearly the expense of doing this could negate tax savings to a degree, but a solicitor could probably change the land registry titles for a few hundred pounds.
*
Q3. Not sure, but HMRC website could guide you.
*
Q4. Unfortunately, for the purposes of allowable expenses, HMRC appear to distinguish between refurbishments and improvements. You can offset refurbishments against rent on your tax return, but not improvements. It's an artificial distinction that seems unfair. This area of the law seems complex. Rewiring is a refurbishment, but the addition of a new conservatory isn't. Bringing a house up to modern specification is a refurbishment.

As for proof, you really should have receipts for allowable expenses, just in case the HMRC ask for them, but you don't send them off with the tax return. Photos of work you have carried out are also useful evidence.

There are many examples of allowable expenses - cost of tools and materials, insurance, council tax, utilities, travel expenses, advertising fees, letting agents fees, phone calls, tradesmen's bills, cleaners.

Q5. It might be worth looking into paying an accountant, especially if they have good knowledge of everything you can offset against potential tax liability.

Good luck.

[JaneK2011]

I am looking for a little bit of advice that will point me in the right direction with regard to self-assessment and tax declaration.
I guarantee that any help and advice I receive will be greatly appreciated.

My wife and I jointly purchased a house, renovated it and our tenant moved in Oct 22nd 2012 – so has been there 3 months.
My wages just take me into the higher rate tax bracket, my wife is a full time mum!

Now I’ve seen a date of 31st Oct mentioned regarding tax-returns but apparently this is extended to 31st Jan if filling in the forms online.

Q1 – Am I correct in that this year’s self-assessment online deadline of Jan 2013 is based on the financial year Apr 2011 -> Apr 2012 and seeing as though my tenant moved in on 22nd Oct 2012 I will do a self-assessment in Jan 2014 for this and do not need to worry about it this year?
Q2 – Obviously I want to pay as little tax as possible on the rental income and so basically want my wife to ‘take’ the income and not me as anything I ‘take’ will be taxed at 40% and what my wife ‘takes’ will be basically tax free (the rental income will be less than 6k PA and so will be well within her tax allowance). So basically my question is can I allocate her to take all of the income or do I need take some or is it basically a 50/50 split?
Q3 – Will my wife also have to declare any rental income via self-assessment?
Q4 – I’ve heard that there are a few things you can claim for and offset against the rent for tax purposes (phone calls, travel expenses, etc?) and that you don’t need any ‘proof’ of these – is this correct and if so are they fixed amounts?
Q5 – Is it worth just getting an accountant to sort all of this out for me…? , I know, I know, some of you will be saying “well if you can’t be bothered to do it yourself then don’t…”. Well I can, it’s just that I’ve never done self-assessment before or anything and it seems a little daunting. I don’t want to get it wrong and owe a load of tax. It is relatively only a small amount of money but, like all of you other landlords, I want to get as much money out of it as I can – I know I worked hard enough renovating the property and want it to be worth my while…

As I stated before, I really do appreciate the time any of you will take in replying to my questions.

Kind regards

1. Yes, you will need to do a paper return by 31st October 2013 or an online return by 31st January 2014 for income earnt in 2011/12.
2. If you are married and jointly own a property, you can't decide yourselves to have anything other than a 50:50 split (as with non-married joint owners). I don't know the specifics but you will need to make a declaration on a Form 17 to the HMRC.
3. All untaxed income must be declared to the HMRC. People often mistakenly believe they only need to do this if they are making a profit but this is not the case. It is possible to do this without using self assessment, but that's only if the income is below £2500 (which is unlikely with a rental property).
4. There are many allowable expenses but you would need to be able to evidence them should you be requested to. You should create a folder for each financial year where you keep all the copies of invoices, rent records, your P60, utility bills, savings accounts interest, rent received, etc. Then you will need to keep this for six years plus the current year. The directgov website has some good information on allowable expenses: https://www.gov.uk/renting-out-a-property/paying-tax
5. You don't need an accountant. Just keep records as you go, understand what's allowable and non-allowable, read up on accruals accounting so that you put income and allowable expenses in the correct financial years, and don't leave filling you self assessment until the last minute. An accountant could give you advice on additional expenses that would reduce your liability or assist you with the method of changing the percentage of income that goes to you and your wife and any implications that has further down the line such as for other taxes.

[JaneK2011]

Q4. Unfortunately, for the purposes of allowable expenses, HMRC appear to distinguish between refurbishments and improvements. You can offset refurbishments against rent on your tax return, but not improvements. It's an artificial distinction that seems unfair. This area of the law seems complex. Rewiring is a refurbishment, but the addition of a new conservatory isn't. Bringing a house up to modern specification is a refurbishment.

The HMRC distinguishes expenditure based on whether it is capital or revenue. This is not an artificial distinction but based on basic accounting principles. While revenue expenditure can reduce your tax liability from revenue based rental income, capital expenditure will reduce your tax liability from capital income which is the profit you make when you sell the property.

OP, you should keep records of all capital expenditure plus your buying and selling costs. As you have never lived in your rental property you will not be entitled to PRR or Letting relief so you are more likely to incur CGT. Although if you and your wife remain as joint owners, you will both have your annual allowance whenever you do come to sell.

[elms]

Many thanks to all of you for the replies - and keep them coming!
I am digesting this information and will no doubt be asking a few more questions... Again, much appreciated.

[isabella]

The HMRC distinguishes expenditure based on whether it is capital or revenue. This is not an artificial distinction but based on basic accounting principles. While revenue expenditure can reduce your tax liability from revenue based rental income, capital expenditure will reduce your tax liability from capital income which is the profit you make when you sell the property.

OP, you should keep records of all capital expenditure plus your buying and selling costs. As you have never lived in your rental property you will not be entitled to PRR or Letting relief so you are more likely to incur CGT. Although if you and your wife remain as joint owners, you will both have your annual allowance whenever you do come to sell.

Hi. This is helpful, thanks.

So, it seems that expenditure on refurbishments can be offset against rental income; and expenditure on improvements can be offset against CGT liability. Perhaps that is put too simply.

Unfortunately, I don't think a comprehensive list of what is in each category exists anywhere. Perhaps that would be next to impossible. However, there are books on lettings and on tax that can give tax payers a good idea, and the internet holds typical lists of what to include.

A key question to ask yourself when completing the tax return: will HMRC think this is a reasonable expense?