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Sam
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Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My husband and i have a flat we rent out, it is in his name.

Resolved Question:

My husband and i have a flat we rent out, it is in his name. I plan to stop work soon to return to full time education. Is there a way to transfer the property to me to benefit from a lower tax rate when i'm not earning since he is a higher rate tax payer. Also, i do the accounting for the flat, can i 'bill' this as a reasonable expense to offset some of the rental income?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi
Thanks for your question I am Sam and I am one of the UK tax experts here on Just Answer.
You can transfer the flat into your name, which will have no capital gain implication as transfer between spouses do not attract a charge. Just make sure that a value is obtained for the flat at the date of transfer, for capital gain purposes.
However, has the property ever been your husbands main residence, if so, this could have tax consequences on lost reliefs, as and when the flat is sold in the future, so please advise further.
If the property is transferred into your sole name, then no you cannot claim for the expense of preparing the accounts, as you are merely fulfilling the requirements of your own rental position for HMRC, but if the property remains in your husbands name, then you can be paid a fee to undertake these duties, which then is an allowable expense, as you will be paid a fee from a source that is not your own asset.
Let me know whether this has ever been your husbands main residence, to see what loss of relief might apply.
Thanks
Sam
Customer: replied 3 years ago.

Hi Sam,

thanks for your reply. Yes the property was his main residence before we bought our other house together. With regards ***** ***** accounting charges, is there a cap on what these charges can be (ie how much can be charged as an expense) or is it defined as 'reasonable expenses'?

To further complicate the situation, we have no mortgage on the rental property, but we do have one on our own home. I'm basically trying to ascertain what would be the most tax efficient way to organise ourselves on the basis we have 2 properties, one rental with no mortgage which used to be my husbands main residence, one main residence, mortgaged, me with no income as a student and my husband a higher rate tax payer!

Many thanks

Vicky

Expert:  Sam replied 3 years ago.
Hi Vicky
Thanks for your response.
Transferring the flat into your name would not be such a viable option, as your husband will lose the relief fir the time this was his main residence (plus the last 18 months of ownership) and also lose the private lettings relief, which can allow up to a further £40,000 of tax relief, from the capital gain charge.
And whilst you would make savings each tax year due to the rate of income tax, (which would see you saving at least 20% - whether this is worth the loss of reliefs due - would be something you would need to review.
There is no cap on the accounting charges, if the flat remains in your husbands name, but clearly it needs to be in proportion to the work undertaken, so if 2 hours a month - saw you being paid £500 - this clearly would be disproportionate. Whereas a charge of £50 would be reasonable.
I am afraid there is very little advise I can offer to better this position, unless you also managed the property to boost up what you are paid, but I would imagine that one flat requires very little managing.
Maybe its just best to leave the position as it is, and a small payment for the accounts work you will perform, and your husband provides you with rest of the rental income, holding back sufficient for the higher rate tax due, to cover the tax bill, which will remain in his name.
But do check the position of capital gains savings v rental income charged at higher rate, and within this consider how long you plan to hold onto the flat - so a true measure can be made.
Thanks
Sam
Customer: replied 3 years ago.

Hi Sam,

Thanks - do you think in that case it is worth looking at transferring the mortgage to the property we rent out so the mortgage interest can offset the tax liability?

thanks

Vicky

Expert:  Sam replied 3 years ago.
Hi Vicky
Thanks for your response and further question
Its worth looking, at but note, that you will only get the interest paid on an amount equivalent to the capital value of the flat from when it was first rented out (so you will need to establish the value at that time) so you may not be able to make this a full recoverable position.
Let me know if you have any follow up questions, but if, in the meantime you could rate/accept the response, this ensures I am credited for my time.
Thanks
Sam
Customer: replied 3 years ago.

Thanks, ***** ***** just clarify your last point about interest being paid on a amount equivalent to the capital value, what do you mean here? Can't the total mortgage interest be used to offset the tax? (so if say the property has a £200k mortgage and its valued at £500k, we're paying interest on £200k that can be offset)?

Many thanks

I'll rate the response now

Expert:  Sam replied 3 years ago.
Hi
Thanks for your response
For the interest to be allowable against the rental income, the mortgage has to be on the rental property and the tax relief due can not exceed more than the value of the flat when it first started to be rented out.
So if the flat was worth £300K back when the rental of it first began and is now worth £500K the loan interest allowable would have to be restricted to that equivalent of £300K of the loan.
So whilst you might get a loan equal to current value (although usually less as a mortgage for 100% of value would never be given) the loan interest you could claim against the rental income would be 300/500 x loan interest paid.
Hope that helps
Thanks
Sam
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Customer: replied 3 years ago.

Hi Sam,


 


Just going back to my original question and thinking about it some more, can we declare the rental income jointly since i have joint ownership via marriage? (ie declare 50% each)


thanks

Expert:  Sam replied 3 years ago.
Hi

Thanks for your further question

Yes you can - just transfer half of the property into your name, just be mindful of the loss of half the reliefs as already advised (the private residence relief and the private lettings relief)

It has to be a legal transfer - you cannot just declare half the income on the basis that you are married.

Thanks

Sam




Customer: replied 3 years ago.

ah ok i see, thanks!


 

Expert:  Sam replied 3 years ago.
You are welcome


Thanks

Sam