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Sam, Accountant
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 Widowed 72 year old friend currently lives alone in a small

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My Widowed 72 year old friend currently lives alone in a small detached house (No outstanding mortgage). Annual income as follows: £1.550.00 Pension credit.
£ 80.00 Private pension.
£ 5,550.00 State pension.
Total income P/Annum: £ 7,561.00 She is therefore below the tax threshold. She is also exempt from paying Council tax. She is considering renting her house for an estimated net income of £7.200.00 PA. The intention is that we co-habit in my house as a couple possibly in June this year. House hold expenditure will be shared equally. Is it possible to give us a brief guide as to the financial implications with HMRC. I am also widowed and pay income tax at the standard rate, I am 79 years of age. Would it be beneficial for my partner to pay any tax due as a private individual.

Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.

Fist I should point out that taking this forward, your friend may lose out on the pension credit - as
1) Income will rise and
2) You will be treated as a couple and your income will be taken into account with any pension credit claim
So you may want to check this out with DWP (limit for pension credits are "225.05 as a couple - and her income will exceed this in her own right - so you can safely assume she will lose the full pension credit)

Also another little bit of advise, I assume this is her own pension (private pension) and not by virtue of her spouses death as co-habiting MIGHT affect this too

But with her property being let out there are two considerations
1) She will need to inform HMRC that rental income has begun, and she will need to complete a tax return each year, to declare all income (so both pensions and the rents received) She will be treated as a private individual and liable to tax on any income in excess of her personal allowances, so should save some of the rental income for this purpose. (I estimate with the £7561 plus $7200 = £14,761 less personal allowances of £10,660 = £4,101 x 20%= £820.20 which equates to £68.35 to put by a month)
2) That when she sells, if its more than 18 months after vacating the property (used to be 36 months but due to change from 06/04/2014) then she will have a capital gain consideration when she sells - although some of the gain will be exempt for the time she lived there and the last 18 months of ownership, and a further reduction for private lettings relief which allows up to a maximum of £40,000 further relief

Do feel free to ask any follow up questions


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