Question archive: rental income

How can my wife and I minimise the tax liability on the rental income from our joint property?

If the mortgage/property is in joint names then you will both be assessed on 50% of the rental income (minus allowable expenses, including mortgage interest), regardless of who's account the rent is paid into and the mortgage payments paid from.

When you come to sell the property any chargeable gain will be divided equally between yourself and your wife. You will both be entitled to the annual capital gains exemption.

A useful leaflet produced by the Inland Revenue is available - IR150 Taxation of rents - A guide to property income.

I am about to purchase a house to let. What expenses can I deduct from the rental income?

You are able to deduct from the rental income expenses which relate to the letting of the property. These are expenses that you pay and which are not reimbursed to you by the tenants. Don't forget that the interest on the loan taken out to purchase the let property will be allowable to set against the rental income.

For the Inland Revenue to issue you with a self-assessment tax return from, you will need to inform them before the 5th October following the end of the first tax year that you start receiving your rental income.

I am going to work abroad for a number of years and will be letting my property out. Can I still claim my personal allowance against the rental income?

The UK personal allowance is available for non-resident individuals who are also British subjects, European Economic Area nationals, Commonwealth citizens and those in the Channel Islands and the Isle of Man.

I am living with my partner and wish to pay him money every month for bills etc. Should he be claiming this as taxable income like a rent payment?

Sharing of household expenses should not create an income tax liability for your partner. A tenancy agreement/lease would be needed to establish taxable rent.

If I sell a buy to let house for less than its value to my long term partner do I have CGT to pay on the value of the house or the price I sell it for? Alternatively can I give her the house as a PET without triggering a CGT liability?

You are confusing your taxes. You must consider both capital gains tax and inheritance tax.

For capital gains tax purposes, the sale is unlikely to be a bargain at arms length so the market value will be the basis for the tax, rather than the actual sale price. You need to consider what deductions might be available. Your question does not give any indication of these.

A PET is a Potentially Exempt Transfer, which is an inheritance tax term and has nothing to do with capital gains. The fall in the value of your estate as a result of the transfer to your partner will be a PET and inheritance tax will not be payble if you survive seven years from the date of transfer. Otherwise, IHT may be payable by your partner, depending on the value of the PET and how long you actually survive. If appropriate, consider insuring the IHT risk.

In 1990 a friend of mine bought jointly with his wife, their matrimonial home. They lived there for four years and then bought a second home which they moved to, letting out their first home. They now wish to sell the first house as the tenant is leaving. What relief against CGT are they entitled to claim?

The reliefs would be:

1. Main residence exemption for 7 out of the 12 years.

2. Lettings relief.

3. Indexation.

4. Taper relief.

5. 2 x the current capital gains annual exemption

This page was last reviewed on 07 July 2004.
The information may not reflect changes in legislation made after this date.