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bigduckontax
bigduckontax, Accountant
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With my husband, I have just become a buy to let landlord

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With my husband, I have just become a buy to let landlord for the first time. I have two questions:
1. I am a 40% tax payer whereas my husband is a 20% tax payer. My husband is retired whereas I am still working full time. We jointly own the flat (50/50). When declaring the gross profit for the tax year (after legitimate expenses allowed against tax) do we have to declare 50% each or can a higher percentage be allocated to my husband who is retired and the main administrator of the flat.
2. We bought the flat as a buy to let, completing on Feb 19th 2016. We didn't get tenants into the flat until 16th May (due to the over supply of flats for rental following the race to avoid stamp duty increase). Can we offset gross profit for the tax year starting 6th April with normal expenses of the flat (service charge and ground rent pro rata for April and May, April and Mary mortgage payment) even though we didn't have any rental revenue until mid May for the period 16 May to 15 June?
Submitted: 9 months ago.
Category: Tax
Expert:  bigduckontax replied 9 months ago.

Hello, I am Keith, one of the ex[erts on just Answer, and pleased to be able to help you with your question.

As this is a Joint Tenancy then the net rentals received must be declared 50/50 for Income tax (IT) purposes. Also remember that of the mortgage repayments only the interest element of these can be used to offset rentals for IT purposes. It is possible to adjust this percentage using a Form 17 procedure, but this means that the ownership percentages will have to be adjusted, the pair of your becoming Tenants in Common and will result in the partner loosing some of the income being liable to Capital Gains Tax (CGT) on any gain made as at the transfer as this adjustment counts as a disposal.

As for pre-letting expenses under the pre-trading rules [source: Tax Insider]:

'To the extent that these are revenue in nature relief is available under the pre-trading rules. These enable expenses incurred before the start of the property letting business to be relieved when calculating profits, provided that:

• the expenses were not incurred more than seven years before the start of the business;

• a deduction would be allowed for the expenses (under the normal rules for deductibility of expenses) if they were incurred after the start date; and

• they are not otherwise deductible.

Relief is given by treating the pre-trading expenses as if they were incurred on the first day of the property rental business.'

I do hope that I have been able to shed some light on your conundrum. To make the profit adjustment to throw more load on your husband you could consider setting up a management company to let the property and pay net income out by making a salary payment reflecting the management responsibilities before distributing the balance.

Customer: replied 9 months ago.
HiSo if I understand correctly even the pro rata proportion of service charge and mortgage interest in the old tax year from 19 Feb to 5th April 2016 could be included in the accounts as offsettabe??
Expert:  bigduckontax replied 9 months ago.

Well technically they should have been included in the prior year tax account as a loss which would be carried forward to the current year, but the result is the same, effectively in tax terms it is a lemon!

Customer: replied 9 months ago.
Hi Keith. Sorry I don't understand what you mean by "it is a lemon". The reason I wouldn't have declared them in the past tax year (year to 5 April) is that we had only just bought the flat and didn't consider we were running a rental business at that point. Sorry but I'm still not clear, does that mean I CAN include these prior expenses (mortgage interest and service charge pro rata being the main ones) incurred 19 Feb through 5 April as expenses against the gross rental revenue I'll be reporting in the tax year 6 April '16 to 5 April '17??
Expert:  bigduckontax replied 9 months ago.

Yes you can, but as I said technically the expenses should have been included in last year's return as a loss and that loss carried forward. Instead just include them in the current year as the end result does not, as my old boss was wont to say, alter the price of cheese. In accounting terms it is a lemon, whichever way you do it the result is the same.

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Category: Tax
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Expert:  bigduckontax replied 9 months ago.

Thank you for your support.

Expert:  bigduckontax replied 9 months ago.

And your kind bonus.

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