Tax implications of renting out house

[Wiresandmore]

Hi,

In the process of an upcoming property transaction, we may have an interesting opportunity. One of the houses we are looking at has another small property attached to it which we could rent out while living in the "main" house.

If my spouse owns the smaller (rental) house outright and has no other income other than the rent from the property, is she able to use her personal allowance and lower tax bands from the rental income - vs. it being in shared ownership and therefore subject to higher tax on my side (as I am already a higher-rate payer through PAYE).

 

[Leo]

Couple of issues, I'm guessing these are being sold as a unit because they are registered under a single title. If so, you won't be able to assign ownership of part without addressing that and splitting the title. If you're taking out a mortgage to finance the purchase, they're unlikely to allow this property to be assigned to someone with no income.

If you're a cash buyer, then it may be possible to split the properties, but a lot will depend on how the second unit was built and issues like utility connections, planning compliance, etc.. If, as it sounds, the second dwelling is a granny flat, you will need to check the planning that was granted for it. Usually letting it these to someone who isn't a direct family member is forbidden.