Income tax on rental income

[fourpointsixgt]

I know a couple of people who own a rental property who don't pay any tax on the income, despite the fax that they earn about 40k in thief day job. I'm thinking of buying a renter with the mrs and was wondering how they do it, one mate bought his after an inheritance 5 years ago and keeps every penny saying "the taxman doesn't bother with small fish like me". Is this the norm or is there a legal way to avoid income tax. Our joint income from our day jobs is about 47k so the extra income of about 6k a year would incur 40% tax, wiping out a lot of profit.

[PurpleMoonlight]

So instead of reporting them for tax evasion you want to jump on the bandwagon?

[sumo69]

They are committing fraud - do you want to join them?

You also say you and the Mrs earn 47k so the rental surplus would be taxed @ 40% - why? The higher rate threshold is £42475 per person so unless one of you is earning the vast majority the profit would be taxed on both of you @ 20%.

Finally, does your acquaintance use an agent? If so, it's only a matter of time before the nasty letter from HMRC arrives.

David

[Sir Bagalot]

HRC are also notified of every house purchase/sale.

Just not worth the risk IMHO.

[fourpointsixgt]

Certainly don't want to join him if he is cheating the taxman, that's why I'm finding out as much as I can first. As for reporting him, no, just not the sort of thing I'd do to a mate. As for our incomes, I earn about 38k, the mrs about 5k so should the rental income all be in the wife's name ?

[eldar]

fourpointsixgt said:

they earn about 40k in thief day job.

Tax dodgers and thieves. Nice friends....

[raptor600]

fourpointsixgt said:

Certainly don't want to join him if he is cheating the taxman, that's why I'm finding out as much as I can first. As for reporting him, no, just not the sort of thing I'd do to a mate. As for our incomes, I earn about 38k, the mrs about 5k so should the rental income all be in the wife's name ?

Put the property in the wifes name and let her take the income - around 3-4k will not be taxed taking her up to her tax free allowance. 20% on the rest. Plus you will sleep at night.

[Eric Mc]

Unless you get divorced.

Think VERY carefully about who's names are on any property that YOU buy.

It is not uncommon for a rented property to produce little or no rental profits. It could be that your mate's property does not generate a profit - which could be the reason why he pays no tax on the rental income.

If he is making a rental loss, he would be dumb NOT to report these losses to the taxman.

[sumo69]

If you buy the property in joint names, it would be anticipated that the profit or loss would be split equally.

So if you earned £6k in total,You would both have £3k each taxable - as your wife has that amount of her exempt amount remaining she pays nothing and you have just over that left in your basic rate band so would pay 20%.

Thus overall a tax rate of 10% on any surplus - happy days and you can sleep at night!

By the way, you would both need to register for self-assessment tax returns with HMRC should you proceed - the responsibility is yours to do this or you could appoint an accountant (cough!!) to do this and prepare your annual returns - the fees are a tax deductible cost from the rental income.

David

[fourpointsixgt]

[quote=Eric Mc]Unless you get divorced.

Think VERY carefully about who's names are on any property that YOU buy.

I thought it gets split 50/50 when there's a split, no matter who's name the property is in.

[seaninog]

There may also be other explanations: for example, he may have invested in an EZ scheme several years ago that went belly-up and his accountant transferred the losses to roll forward against general Rental income. Just sayin...