Have been browsing the forum and I can admit there is quite a lot of interesting information, specifically for us newcomers.
Caught my attention renting tax mentioned on some posts. This is new to us, not been advised or mentioned on any conversation with all parties. Maybe this is the norm, but we had been unaware.
We both work FT and don’t do any tax returns (not self-employed), so it will be our first time filling a tax return form.
Someone mentioned that I can use my wife’s (we both are on the contract) as she is on a lower tax code. Does that mean all purchases, mortgage payment etc have to be under her name?
We have ton of questions, but maybe they are answered elsewhere.
Any help is appreciated,
I dont know what is meant by ‘renting tax’, but my guess is they mean the s24 restrictions on mortgage interest relief.
The tax presumption on a property jointly owned is that income and expenditure is shared 50/50. If you want to vary that you should consult a tax specialist or solicitor about whether you can vary the beneficial ownership proportions using a deed of trust and then use form 17 to inform HMRC. If its possible for you, you can change thd proportion by anything up to 99/1% in favour of your partner.
Apology for wrong terminology, what I meant is rental income.
Thanks Cath2 for the link.
This clarifies my point (although if correct the above is dated 2015):
Married couples and civil partners who own property jointly in equal shares can’t elect for the income from that property to be split anything other than 50:50. In the words of HMRC: “You cannot choose to have the income taxed on an unequal basis because you think it would be to your advantage”
Yes, that’s right. The rules re interest have changed since then (you only get a deduction at 20%), but the rules re income splitting are the same.
If the property is owned as Tenants in Common then I think you can vary the beneficial ownership, but not if it is owned as Joint Tenants.
How long have you been renting out property and not declaring the income ?
Hey Steve, how your comments are relevant to my question?
But well, for the records we rented it last month, for the first time.
Please don’t ask those type of questions, but if you have any positive input, please do reply.
As both of you are working FT and don’t do tax return, you will be on PAYE (Pay As You Earn). PAYE is a method used by HMRC to collect any income tax due from you for the current tax year. If your employment is your only source of income, the amount of tax collected over the year would nearly always be the amount due from you for that tax year. Therefore if you’re in FT employment and you have no other income, the IR will not require you to fill in a tax return and they will advise you in writing to that effect. If you start a rental business, your rental income will be taxable as it doesn’t come under ‘PAYE’ so you’ll need to fill in a tax return every year so that the HMRC can assess the amount of tax due from you. If you’re a higher rate tax payer, your rental income will most certainly be subjected to the higher tax rate. You’ll need to inform the IR that you’ve started a rental business and they’ll tell you what to do next.
Thanks for replying.
For sure I’m getting confused, I’m expecting my spending to affect my rental income (spending for any fixes or invoices for rented property). If PAYE is used, I’ll have no chance to show what I spent.
I may probably better off asking the tax office for some kind of guidance.
Good luck with asking the tax office - if you’re lucky enough to get through, you’re still unlikely to get anyone who has any technical knowledge
I think John.Ku’s reply is irrelevant - you have rental income and will have to do a tax return (assuming rental income/profits are not unusual low).
You can deduct any expenses incurred wholly and exclusively for the rental business. So, yes, repair costs etc, council tax and utilities between lets*, mileage at 45p per mile travelling on rental business (ie to property or to the DIY store to collect supplies), possibly something towards phone calls etc.
You will fill it all in on your tax return and pay tax on the profit at your marginal rate of tax (ie 20% on profit falling into your 20% band, 40% on any falling into your 40% band etc, with a deduction for interest at 20%)
The only interactions with PAYE are:
- HMRC might then, for the next tax year, include an estimate of your rental profit in your tax code to try and get you to pay the tax quicker. If they do that, I recommend calling them and asking them to remove it from your tax code because it is voluntary to have rental profit in your tax code, and it gets very confusing working out what they have deducted and what you owe because it’s always way out from actual.
2 If you owe less than £3,000 in tax, and file your return online before 30 December, you may be able to have the tax collected through your tax code over the following tax year.
(*Assuming you aren’t letting with bills included)
If the property is in both names you both have to register with HMRC and any profits are equally split. You might be wise to employ a accounts advisor for your 1st year till you understand it better. Far cheaper than a hefty fine as lack of knowledge cannot be used as an excuse.
Rental income is registered separately to Paye. Tax is paid after your gross profit and paye income pensions etc have been declared. Any paye paid is taken off the totals.
Christine, that is a sound advice for sure, appreciate.
It looks like we are much better off starting looking for an accountant sooner rather than later. I know there are legal ways one can save, but need to know how (eg we have a salary sacrifice at work - this is what is called I think, where you pay something in front to save elsewhere. All I know my net income is better).
Anyway, next task: find a sound accountant.
Thanks again for your advice.
The tax year ends on 5 April, so there’s no panic. You get until the end of the year to submit a tax return (a month later if you submit online). If you just started renting out a property, your first tax year ends 5 April 2022 and you will have until 31 December 2022 (or 31 January 2023 for online) to submit your first tax return. Best to register for online submission via Government Gateway as it’s much easier. Just remember to keep records! All income and expenditure for the property. And put aside the tax money so that you can pay it! Even if you make a loss in your first year, you need to submit a tax return and register the loss, as it can be offset against property profit that you make in the future.
It’s 31 October if you submit on paper, 30 December (yes, 30, not 31) December if you submit online and want the tax collecting via your tax code, and 31 January for online returns otherwise.
Thank you all for your comments.
We are so better informed and aware what have to do next.
Appreciate the help of the community
I stand corrected! Apologies for my inaccurate info.