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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Tony We have just let out our former home on an 18 month

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Hi Tony
We have just let out our former home on an 18 month tenancy agreement. through a letting agent. Due to some credit issues the tenants are paying the full 18 months rent up front.
I would prefer, for tax purposes to spread the income over the life the tenancy agreement even theough the tenant has paid up front. Can I legitimately do this, and if so how should I account for it.During the course of the tenancy there will undoubtedly be some costs incurred, which of course will be paid as and when they occur.We also have a £350,000 buy to let mortgage on the property. How will the changes in mortgage relief legislation affect us over the next three years or so? What can we do to minimise the effect of these changes?Thanks in anticipation of your help
Hi. As the rent covers an agreed 18 month tenancy, you can account for it as if it was going to be received monthly. It would be unfair to have to account for it in one tax year. The costs you will incur will be deductible as and when you incur them, though some landlords split costs such as insurance and service charges across two tax years where the policy year or service charge years don't align with the tax year. As long as you are consistent, you should have no problems. You can see what is going to happen to mortgage tax relief from the start of the 2017/18 tax year until the transition is complete in 2020/21 here. Tax relief will gradually be reduced so that the most any landlord can get is 20% whereas as of now, higher rate taxpayers get more tax relief for mortgage interest. As for avoiding the changes, look here for some ideas. For one property, it is probably not worth setting up a limited company. You could have the property owned by whichever of you and your spouse is a basic rate taxpayer. I hope this helps but let me know if you have any further questions.
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Customer: replied 2 years ago.
Many thanks for your swift response TonyIf a property has previously been let under a private agreement, rather than through a property company, can I still set up a company and put that property in it. Also, does it matter if the current mortgae is in private names rather than that company?Thanks againDon Thomson
You can still set up a company to hold the property but you will be treated as having sold it to the company at its open market value which may have CGT implications notwithstanding the fact that it has been your main home and so the gain should be exempt up to 18 months after you moved out. Your lender may want you to remortgage on less favourable terms.