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Sam, Accountant
Category: Tax
Satisfied Customers: 14197
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Hello, I wonder if you could help me please. We are married

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Hello, I wonder if you could help me please.
We are married couple, myself been a high rate tax payer, my wife earning less than £4K per year. We own our own house, but a year ago bought a second house in a different town for our eldest son to live in. This is on a C&I mortgage, with approx. £300 part been interest and £300 capital in monthly payments. Our son is now earning, so we would like him to contribute up to £250 a month towards the cost, via a bank standing order.
So our question is, are we liable for income tax? Could he transfer money directly to my wife’s account, etc.?
Note, he has no personal interest in the house and has signed a disclaimer to this effect with the bank.
Thank you in advance for any help.
Thanks for your question and for asking for me.
This £250 a month will be treated as rental income and as this property in which your son resides is in your joint names, then this will give rise to a rental income of £125 each per month - even if all this income is paid to your wife.
I am afraid as a married couple the only way a split other than 50:50 could be considered would be if one of you had a larger investment in the property than the other. I would imagine this would then suggest that you had the greater investment as it would be your income that would have secured the loan/mortgage -
However if most of the original capital for the purchase was put up by your wife, then there would be scope to recognise the split more in her favour. Let me know if this is the case.
But as things stand assuming this has to be treated as a 50:50 split - then its not as dire as you might fear.
As you pay £300 interest a month - this will allow each of you to claim £150 interest - which immediately leaves both of you with a rental loss of £25 a month - then you have other costs to consider such as buildings insurance, and any repairs carried out.
This loss can then either be
1) Set off against other income you have, which will suit you or
2) Carried forward to offset against future rental income gains which will suit your wife.
So you can each use the loss to the best tax efficiency.
Let me know if you need any clarification of any of the above.
Customer: replied 3 years ago.

Hello Sam and thank you for your answer,

To be sure I understand correctly, and yes house mostly on my income so will be 50:50 split, but my wife could effectively receive the £125 income tax free anyway as doesn’t earn enough, but I would be due 40% tax on £125, however since we are paying interest of £150 each I could offset the income against this, and thus in the end not effectively be paying any tax. This also sounds more like it would be treated as a rental property and up to now we haven’t considered claiming for any Interest, etc. losses, so maybe we should think about this?

Thanks for your response
The £125 would be free anyway as by the time her share of the loan interest is considered - there is no taxable position left.
But if there was no loan interest then £125 x 12 = £1500 rental income plus her approx. £4000 other income - which totals 5500 which is below the £10,000 personal allowances.
But with the loan interest - she has rental income of £1500 less loan interest £1800 = £300 loss
So her income would be the £4000 which would remain tax free as below £10,000 personal allowances, and have a £300 loss to carry forward of the rental income.
It has only become a rental income property as you will now start to receive rents - I know you view this as Keep, a contribution towards the upkeep and costs, but HMRC will treat this as rental income, regardless of the fact this is your son.
I am afraid its not a question of thinking about it, this is how HMRC will treat these funds from you son, If he lived at home with you, then it is treated as keep, and does NOT have to be included as taxable income anyway. but this is a property that is not the main home, and therefore any contribution your son makes is going to be treated as rental income.
And yes your £125 share - would be wiped out by the £150 share of the loan interest - thereby not increasing your tax position at all.
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