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TonyTax
TonyTax, Tax Consultant
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As part of my divorce settlement I will be taking out a buy

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As part of my divorce settlement I will be taking out a buy to let mortgage to provide my ex wife to continue to live in my property. I'm not looking to make any profit from rent as I will simply charge my ex whatever to monthly repayments on the mortgage are as the rental amount. When my daughter, who also lives there, reaches the age of 18 the settlement states that the house is sold and the equity is divided between my ex an me.
The problem is I have to have a tenancy agreement to get the by to let mortgage and I want to state in this that the rent will be @an agreed amount@, will I still need to pay tax on this arrangement even though I'm not making any profit?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell me what the buy to let mortgage funds will be used for please. Has the current lender insisted on replacing the existing mortgage with a buy to let one as your wife will be paying you rent for your half of the property?
Customer: replied 2 years ago.

The buy to let mortgage fund will be used to buy out my existing standard homeowners mortgage. This has always been just in my name only. Yes my current lender has insisted on replacing this homeowners mortgage with a buy to let one as I am not living at the property any more. I was also hoping to take out a sufficient amount for the mortgage to pay for some repairs to the property but may decide not to if this complicates the issue.

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.
Hi again.

There should be no problem with claiming mortgage interest against the rental income, albeit that the rent may not reflect the commercial rate so, given that the two sums will be equal, you should not have a taxable profit. However, you should read the notes here which may or may not be relevant. Any loss you make on this let will not be deductible from other rental income profits.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Thanks, ***** ***** As I'm not making a profit, am I legally bound to declare any details of this arrangement to the Inland Revenue?

Expert:  TonyTax replied 2 years ago.
The income and expenses of a property letting should normally be dislcosed in annual tax returns.

However, if you look under the heading "You have income from savings, investment or property" here, you will see that if the income from letting before the deduction of expenses is under £10,000, the profit is under £2,500 and you have a source of income taxed under PAYE, you can have any tax due collected via your tax code.

If you don't have a source of income subject to PAYE, then all the three criteria listed lower down on the web page must be met for you to have to complete annual tax returns.
Customer: replied 2 years ago.

Ok thanks, ***** ***** to confirm, I have my income tax normally paid under PAYE using my tax code, so in this case I would just need to notify my tax office of the situation so that they could assess it as part of my existing PAYE payment?

Expert:  TonyTax replied 2 years ago.
That's correct. You will only pay tax on any profit you make.
Customer: replied 2 years ago.

Excellent! - just one final thing please: When I sell the property in four years time as instructed by my divorce ruling, I believe I will subject to Captal Gains Tax. The ruling was that my ex recieves 60% of the equity and I recieve 40%, as well as this I have to pay her £15,000 in lue of my pension.

Could you tell me what the CG tax is payable upon please? e.g. is it on the increase in house value from the date on which I moved out of the property until the date upon which the property will be sold? or is it only on the profit I will make during that time? thanks

Expert:  TonyTax replied 2 years ago.
You ought to consult your solicitor but you appear to have something akin to a Mesher Order in place. You can reahere.d about those here from a legal point of view. The tax treatment is outlined here.

You are treated as having disposed of the property into trust at the time of the court order at its market value at that time and you claim main residence relief for the period that you lived in the property plus the last 18 months if you were not living there in that period if the trust was created after 5 April 2014 (36 months if it was created before 6 April 2014). When your daughter is 18 you effectively reacquire the property at its current market value (your cost) and if it is sold soon afterwards, you are unlikely to have any taxable gain.

If things are organised properly and depending on the timing of events, you may be able to avoid a Capital Gains Tax liability.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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