Landlord's tax relief on rented house
Discussion
Joint owned house is rented out.
Rent pa = £12,000
Agency fees pa = £1,200 (deducted before the rent is received from the agent)
Mortgage interest pa = £6,000 (paid by Landlord 1 every month. S(he) then takes the £500 pcm back out of the rental bank account)
Profit pa = £4,800
Each Landlord receives £2,400 rental income
Does Landlord 1 claim tax relief on £600 agency fees plus £6,000 mortgage interest?
Or do both claim £600 agency fees and £3,000 mortgage interest?
Landlord 2 hasn't paid any of the £6,000 mortgage interest throught the year.
Not sure how this works - thanks.
Rent pa = £12,000
Agency fees pa = £1,200 (deducted before the rent is received from the agent)
Mortgage interest pa = £6,000 (paid by Landlord 1 every month. S(he) then takes the £500 pcm back out of the rental bank account)
Profit pa = £4,800
Each Landlord receives £2,400 rental income
Does Landlord 1 claim tax relief on £600 agency fees plus £6,000 mortgage interest?
Or do both claim £600 agency fees and £3,000 mortgage interest?
Landlord 2 hasn't paid any of the £6,000 mortgage interest throught the year.
Not sure how this works - thanks.
Everything is split completely down the middle - gross rents, expense items and profit.
What you need to do is prepare an Income and Expenditure account for the rental income and expenditure on the property for the year ended 5 April 2010. Once you have done that, divide ALL the figures by 2 and show the respective halved amounts in your individual tax returns.
What you need to do is prepare an Income and Expenditure account for the rental income and expenditure on the property for the year ended 5 April 2010. Once you have done that, divide ALL the figures by 2 and show the respective halved amounts in your individual tax returns.
OP do remember if property is unfurnished to deduct 10% of the gross rent received, box no. 34 of UK property return. Do also ensure that fuel, telephone calls, postage etc. are fully deductable.
As to 50% division of profit, if there is a "partner" who is not paying the higher rate of tax, the other partner is, and the former partner carries out additional work to the rented property, gardening, cleaning etc., there is nothing to stop that person receiving a higher share of the investment profit.
As to 50% division of profit, if there is a "partner" who is not paying the higher rate of tax, the other partner is, and the former partner carries out additional work to the rented property, gardening, cleaning etc., there is nothing to stop that person receiving a higher share of the investment profit.
Based upon the effort, work rate that each partner puts into the running of the investment/property, so just because each partner owns an equal share, (50% of the investment), nothing stops the partners from dividing/sharing the profits to equate to the efforts/work of each partner.
Eric, if one of the above partners is carrying out maintenance works, gardening, cleaning or decorating etc., then why should that partner not receive financial benefit for the same, for surely the alternative is for both partners to employ contractors to do the works, where the same net investment profit will be arrived at, so for HMR&C no difference, and therefore acceptable.
Eric, if one of the above partners is carrying out maintenance works, gardening, cleaning or decorating etc., then why should that partner not receive financial benefit for the same, for surely the alternative is for both partners to employ contractors to do the works, where the same net investment profit will be arrived at, so for HMR&C no difference, and therefore acceptable.
The tax rules don't work that way for INVESTMENT income.
Income from a rental property is INVESTMENT income, not EARNED income. Investment income is allocated to the individuals based on their legal share of ownership of the asset. Time and effort put into generating income is not taken into account in deciding that split.
If an individual feels that they should be rewarded more because of the work they do in managing the rental property, then they should be paid a Management Fee to cover their time and effort. This management fee is deductable in arriving at the rental profit which will still be split (as always ) 50:50 between the two owners.
The management fee received by the individual who has received it is Self Employed EARNED income and would be returned separately under the Self Assessment tax sysrem. It could be liable to Class 4 NI (indeed, the individual might need to register as self employed so he can pay his Class 2 NI each month or quarter). Whether NI is due will be down to how much the management income comes to each year.
One way an individual can claim Management Income without having to pay tax on it is to claim it as "Mileage" at the 40p/25p mileage rates.
Income from a rental property is INVESTMENT income, not EARNED income. Investment income is allocated to the individuals based on their legal share of ownership of the asset. Time and effort put into generating income is not taken into account in deciding that split.
If an individual feels that they should be rewarded more because of the work they do in managing the rental property, then they should be paid a Management Fee to cover their time and effort. This management fee is deductable in arriving at the rental profit which will still be split (as always ) 50:50 between the two owners.
The management fee received by the individual who has received it is Self Employed EARNED income and would be returned separately under the Self Assessment tax sysrem. It could be liable to Class 4 NI (indeed, the individual might need to register as self employed so he can pay his Class 2 NI each month or quarter). Whether NI is due will be down to how much the management income comes to each year.
One way an individual can claim Management Income without having to pay tax on it is to claim it as "Mileage" at the 40p/25p mileage rates.
Edited by Eric Mc on Monday 20th December 18:06
I am certain Eric if you knew the relationship of the two partners, both their present taxable earned and unearned income positions, then through one of the partners either asigning the other partner a higher percentage of the investment income, or through one partner earning earned income from maintenance work carried out on the property, thereby reducing the joint partner's tax.
If the OP's partner is his wife, with no or little earned and unearned income, then firstly the OP could consider making an assignment of the beneficial interests of the property to his partner/wife. Also if the other partner was paying a higher rate of tax, then the other partner in "the relationship", presently paying little or no income tax, could be paid a salary/monies for carrying out remedial works to the investment property. With the personal tax allowance for the second partner, thiswould reduce the total amount of tax the relationship/partnership ended up paying.
If the OP's partner is his wife, with no or little earned and unearned income, then firstly the OP could consider making an assignment of the beneficial interests of the property to his partner/wife. Also if the other partner was paying a higher rate of tax, then the other partner in "the relationship", presently paying little or no income tax, could be paid a salary/monies for carrying out remedial works to the investment property. With the personal tax allowance for the second partner, thiswould reduce the total amount of tax the relationship/partnership ended up paying.
Perhaps we should be asking Top Shop’s owner Sir Philip Green the answer to that question, certainly his wife living in Monte Carlo already knows the answer. Just think Eric what one could do with £1.2 billion.
I assignment of the beneficial interest in the rental property can be a risk, in so far as the partner making the assignment fully trusts the other partner, not to run off with the accountant milkman. So the other alternative then, presuming for one moment that the second partner has little or no earned, unearned income, is rather than pay outside contractors to do maintenance work, is for the partnership to both employ and pay the second partner for doing the said works.
In dealing with HMR&C the tax payer has to expect that within tax rules there are grey areas, and that when there accounts, tax returns are scrutinised by the Revenue, they, the tax payer must be both prepared to provide proof and to argue their position.
I assignment of the beneficial interest in the rental property can be a risk, in so far as the partner making the assignment fully trusts the other partner, not to run off with the accountant milkman. So the other alternative then, presuming for one moment that the second partner has little or no earned, unearned income, is rather than pay outside contractors to do maintenance work, is for the partnership to both employ and pay the second partner for doing the said works.
In dealing with HMR&C the tax payer has to expect that within tax rules there are grey areas, and that when there accounts, tax returns are scrutinised by the Revenue, they, the tax payer must be both prepared to provide proof and to argue their position.
Yep - you can argue what you like with the tax man. He doesn't have to believe you.
And if you truly think you are right, you can go all the way to the House of Lords - provided you have got very deep pockets, can afford the best tax QCs in the land and are prepared to pay their bills if you lose your case.
On the other hand, you might even win.
Somehow, though, I think the average couple are not in the Sir Philip Green league and taking big tax risks for relatively small tax savings may not be that clever a strategy.
And if you truly think you are right, you can go all the way to the House of Lords - provided you have got very deep pockets, can afford the best tax QCs in the land and are prepared to pay their bills if you lose your case.
On the other hand, you might even win.
Somehow, though, I think the average couple are not in the Sir Philip Green league and taking big tax risks for relatively small tax savings may not be that clever a strategy.
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