Simple accounting question - Eric?

[rfisher]

So - made up figures but genuine confusion ....

House is rented and in joint ownership.

Rent £1000 pcm
Agency fee (incl VAT) £100 pcm
Various repairs over 12 month period £1500 (deducted from rent income by agency before paying balance)
Mortgage interest £400 pcm

Payment goes into a joint account each month.

Owner 1 has paid £700 before the property was rented for marketing, cleaning and insurance etc.

Owner 1 also pays the mortgage each month.

Questions

1. Does owner 1 put income as £6000 (half of the total for 12 months) on tax return and expenses as £1350 (half of £1200 agency fees + half of £1500 repairs)
2. How is the £700 paid before rental incorporated? Is it taken out of the money in the joint account, or added to the expenses total only for owner 1, to calculate how much of the rental income is due tax?
3. Does owner 1 take more than 50% of the joint account money to reflect the fact that he / she pays the mortgage each month or is that split between the 2 owners as a tax offset expense?

I expect the answer is probably to get an accountant but I'd prefer to do it myself after a bit of help from PH if possible.

[amirzed]

rfisher said:

tings

I think....

1. Yes, but also £350 for half the marketing expenses and £2400 loan interest

2. You spit it 50:50 as the 'business' is joint, who pays it is irrelevant.

3. The interest offset is split 50:50 and how you distribute the money is down to you

[rfisher]

Thanks.

Still not sure about question 2.

I think owner 1 should take £350 out of the joint account before the remainder is split 50:50 so that the £700 initial outlay is split between them.

Both should then put £350 down as pre-rental expenses.

No?

[Wings]

Do both joint owners work and receive a paid income, if so do they both get taxed at the higher rate?

[amirzed]

rfisher said:

Thanks.

Still not sure about question 2.

I think owner 1 should take £350 out of the joint account before the remainder is split 50:50 so that the £700 initial outlay is split between them.

Both should then put £350 down as pre-rental expenses.

No?

answer to Q1 is the same for both partners, that way all the income and expenses are split 50:50. Owner 1 could put £5m into the joint account and his tax figures wouldn't change, similarly owner 2 could empty the joint account, burn the house down and his tax return figures would still be the same as owner 1. If owner wants to take £350 out of the joint account to pay for the expenses then thats nothing to do with the TR.

If you're talking about how to distribute the income then owner takes £700 out of the bank account, then you split 50:50.

[rfisher]

Err OK.

Wings - yes both 40% tax payers.

I'm not trying to fiddle anything here, just trying to make sure both owners get what they are entitled to from the income and declare the correct figures on their separate self-assessment tax returns.

Ta.

[markh1973]

You need to separate what happens for tax return purposes from the flow of cash.

Assuming 50/50 split then both put £6k income and £1350 expenses (from maintenance and agency fees) on their tax returns. Owner 1 would also deduct his mortgage interest and the initial £700, unless it is intended that Owner 2 contributes to this through paying Owner 1 £350 in some way.

The flow of cash into/out of the joint accounts has no bearing on the tax return except if Owner 2 is contributing to the mortgage out of that cash such that he is actually paying half of it.

[Eric Mc]

First of all, it's not a "business". Rental Incone is taxed under a different set of rules to business income.

Secondly, is the property jointly owned?

If it is , any profits generated by the rental income are divisible equally between the two property owners - irresepctive as to who paid for what or into who's bank account the rental income was paid.