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Sam
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Category: Tax
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, I have two queries here: 1. have a property that was transferred

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, I have two queries here: 1. have a property that was transferred to myself and spouse by spouses' parents but we are currently repaying, in a monthly fixed amount, the cost of the property (value at the time of transfer). The title deed is also in our name. We want to let out the property but not sure if rental income will be tax liable on the gross or net (after we deduct repayments and maintenance cost)? Monthly payment to in-laws is interest-free but benchmarked with prevailing inflation rate. We have evidence to show through a signed mutual agreement document and the monthly repayments via bank transfer.
2. If I set up a bare trust kids (both below the age of 5) to receive the rental income, can tax liability be reduced? I and spouse are currently standard (20%) tax payers.
Your advice will be appreciated.
Many thanks
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.

Thanks question, I am Sam and I am one of the UK tax experts here on Just Answer.
I am afraid none of the repayment is likely to be allowable, as only ever interest element of loan repayments are an allowable expense against rental income and you advise that you pay no interest, so only maintenance and general repairs, key cutting, advertising , buildings insurance etc will be permitted expenses to offset against the rental income.
Yes you can set up a bare trust, but you may incur a capital gain on transferring the property into trust if its not going to be your main residence (which I assume not as you plan to let it out) and the trust pays tax on the rental income rather then the beneficiaries of the trust. An I would urge you to take financial advise before going down this route so you are aware of all the pros and cons (we are UK tax experts not trust experts which is a financial advisers forte!)
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13694
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Sam and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thanks reply. Would it have been any different if property was on mortgage and not 'fully owned' in which case mortgage repayment would be made to lender (bank)? I mean would this repayment to lender not be allowed as an 'expense' against rental income?

Many thanks

Expert:  Sam replied 1 year ago.

No, no difference at all, other then the fact that Interest WOULD be charged by a high street lender (as that's how they make their money!)
And that interest charge would be an allowable claim against the rental income position.
Do let me know if you have any further elements you wish answered on this matter, but, it would be appreciated if you could rate the level of service I have provided (or click accept)
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13694
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Sam and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thanks Sam, rated you :)

....I have always thought that loan repayments are allowed but now I understand.

As I do have a day job from which PAYE is deducted, should I be worried that earning additional income would tip me over to higher tax (40%) threshold? I earn below 35k at the moment and with additional rental income, total earnings could be within the region of 43k (9k from rent). OR rental income will be treated separately with the basic tax rate of 20% applied? I understand that if property is managed by an agent, they could deduct the tax element at source in which case I may not need to complete a self-assessment, as the agent will be providing me with tax certificate at the end of the tax year? If I was to do self-assessment, should be applying 20% to the net income of 9k instead of 40%?

Expert:  Sam replied 1 year ago.

Thanks rating very much appreciated.
Sadly its only ever the interest element of any loan repayment that is allowable and whether it would be prudent to obtain a buy to let loan to pay off parents and get the interest amount to offset the rents (but then you still will owe the capital!)
As your question now is onto a new topic, you should note that this should really be listed as a new question with a new amount, so we experts get credit work we do, but as I can see you are fairly new to Just Answer, I shall on this occasion answer under this question thread.
It will be a fact that this will tip you into the 40% tax bracket as any income that exceeds £41865 does become liable to 40% tax.
However only half the rental income will be yours (as you advise the property is you and your spouses name)
You will need to complete self assessment every year regardless of whether you have an agent acting management of the property and note they can only deduct tax from the rents is an individual is non resident in the UK - which you do not indicate is the case.
But even if you were non resident and tax had to be deducted from the monthly rent, you would still need to complete a self assessment tax return each year (as would your wife)
Thanks
Sam
Customer: replied 1 year ago.

Thanks!

:)

Expert:  Sam replied 1 year ago.

You are very welcome
Thanks
Sam

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