How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4808
Type Your Tax Question Here...
bigduckontax is online now

. My Mum passed away in June 2013 and my sister (who lives

This answer was rated:

My Mum passed away in June 2013 and my sister (who lives in Australia) and I inherited the family home. We tried to sell the house, but the market in Northern Ireland was quite stagnant and we were advised to rent the property until the situation improved.
The Letting Agent we used, invested almost £7000 to upgrade the house and as a result it has been rented out since 01/12/2013.
The income from the rental has gone to repay the Agent for their investment, but I've been receiving an income since 01/2015 and am unsure how to go about informing the Tax Office.
I have been approved for a Buy to Let Mortgage on the property, which is almost complete, as my sister wanted to sell, but I've kept it on as an investment. I've also been paying rates and insurance on the property, without any payments from my sister, since June 2013.
I'm unsure where to go from here, so I hope you can give me some direction. Thanks for your help with this.
Lois Smith
Hello Lois, I'm Keith and happy to help you with your question.
There are two latent problems for you here. One is Capital Gains Tax (CGT) and the other Income Tax (IT).
You will be liable for CGT on the gain on ultimate sale. This gain would be the net selling price less the acquisition price. The latter would be the probate value plus the 7K spent on improvements. As you own this house 50/50 with your sister only 50% of the gain would be liable to CGT. As this was not your sole or main domestic residence the whole of the gain would be assessed for tax, but you do have an Annual Exempt Amount of 11K [14/15 rates] to offset this. Alternatively, you would be entitled to Lettings Relief up to 40K. Any gain over that would be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
Clear as mud isn't it so far? There is a further complication should you not own any landed property elsewhere which you occupy as your sole or main domestic residence. In this case for the the last 18 months of ownership you are deemed to be in residence even if this is not the case and only the proportion of the gain, 18/total ownership time in months is subject to CGT.
So that's the CGT position.
Now as for net rentals received. These are income and must be declared on your self assessment income tax return. If the rental income is over GBP 2500 a self assessment at the end of each tax year is mandatory. Many people in the UK never have to self assess. Unfortunately you are out of time for declarations in the 13/14 tax year so you will have to make your peace with your tax office who may impose penalties for failure to disclose this income. The fact that this was used to repay the 7K is irrelevant as this was effectively a loan by the Letting Agent and essentially loans are outside the scope of UK taxation unless interest is received thereon. You should have been declaring net income from December 2013.
So to summaries; CGT will not kick in until you sell. IT is a liability and will be added to your world wide income from December 2013 and need to be declared on your annual self assessment tax return.
You could try throwing yourself on the mercy of your tax office over your failure to declare 14/15 income in time, but charity is in very short supply at HMRC thes days. I am so sorry to have to rain on your parade.
bigduckontax and other Tax Specialists are ready to help you
Thank you for your support.