Paying tax on rent

J

jumper1

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Hi my wife and i are thinking of renting our property.

My wife only works part time so she will be the 'Landlady' and looking after things. As this is the case she will be collecting the rent and upkeeping the property.

As she is only part time worker earning less thank 7000 a year ,will she be on the lower rate of tax or will the top rate of tax apply when she collects the rent and declares it.

Thanks, Jumper
 
Who owns the property - you, your wife or it's in your joint names? I think that this could be relevant to how the rental income will be taxed. There are also other possibly relevant issues. See here for example and consider getting professional advice.
 
As clubman says it is whoever owns the house that is liable to tax on the income. Who collects the rent is not relevant.

Also, if you are jointly assessed for tax purposes (and that is generally the most beneficial option) then it is not likely to make a major difference which of you declare the income as you would currently be using any excess credits or lower tax rate cut off your wife is not using.
 
The advice I got from a tax consultant is that it's whoever's name is on the lease/rental agreement is the person who pays tax on the rental income.

I changed our lease into my wife's name when we changed tenants last year to enable us to pay less tax on the rental income.
 
We're in similar situation: hubby bought 1st house and we moved. I persuaded him to hold onto first house which I manage (rents, renovations, painting, tiling etc).

Question: can he "pay" me (as he might an agency) and then this would be deductable. Also, can I "pay" myself going rates for painting, tiling etc? If not, would I be better paying someone and being able to offset on tax?
Sorry, should I have new post for this ????
 
DonKing said:
The advice I got from a tax consultant is that it's whoever's name is on the lease/rental agreement is the person who pays tax on the rental income.

I changed our lease into my wife's name when we changed tenants last year to enable us to pay less tax on the rental income.
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I would have imagined that the person collecting the rent would be acting as an agent for the beneficial owner of the property. The agent may be responsible for deducting/remitting taxes but it is the owner who is ultimately liable for them? I may be completely wrong and am not a tax expert!
 
Re the lease in wife's name - I'd check with an accountant the status of the rent in this case. Even if the property is held in the husband's name it doesn't mean the wife does not have a beneficial interest in it and therefore presumable you are both beneficieries of the rent even if the lease is in one name.

As far as I know as a landlord you can't charge for your own time working on the property (painting renovating etc) so it's probably more efficient tax wise to pay someone else.
 
webtax said:
Also, if you are jointly assessed for tax purposes (and that is generally the most beneficial option) then it is not likely to make a major difference which of you declare the income as you would currently be using any excess credits or lower tax rate cut off your wife is not using.
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Individualisation means that this statement is not true.

Generally, where one spouse has a low income, it is best to put any additional income into that spouse's name to maximise the 20% band. In this case, could the property be put into the wife's sole name?
 
Nige said:
Individualisation means that this statement is not true.

Generally, where one spouse has a low income, it is best to put any additional income into that spouse's name to maximise the 20% band. In this case, could the property be put into the wife's sole name?
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at the end of the day income will be assessed jointly, which means joint income of husband and wife. i didn't think that it is that easy to shift income between spouses, though you can shift tax credits, hence it is adviseable to shift tax credits to high income earner (that is the one paying at 41 per cent, not the 20 per cent)
 
dublinli said:
at the end of the day income will be assessed jointly
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Not if the married couple opt for assessment as two separate individuals. Only if they opt for joint or aggregated assessment. I still don't know when/why a couple would plump for the first option though!
 
For a married couple who are both paying tax at the 41% rate there's no real advantage to being assessed jointly as there is no transfer of allowances. It's only advantageous where one spouse is paying tax at 20% and one is paying at 41% and only then within certain income levels.
 
Marg, if we were to take an investment property that is owned jointly by a married couple, Where one partner's marginal tax rate is the higher rate (41%) and the spouse's marginal rate is 20%.

Can the rental income from an investment property not be assessed as income to the spouse only? This should reduce the tax due in total for the couple
 
ClubMan said:
I'm confused. Can you clarify precisely what is not true in the comments above please? :eek:
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Webtax claimed that in the case of joint assessment, one spouse would be using any unused credits and low tax band of the other spouse.

However, with individualisation a married couple will only fully utilise the lower tax band if the couple earns 68k between them and neither of them earns less than 25k.

So, if one spouse is earning 25k, even if the couple are jointly assessed, it makes sense to try to place additional income into the lower earning spouse's name.
 
jocmccoy said:
Marg, if we were to take an investment property that is owned jointly by a married couple, Where one partner's marginal tax rate is the higher rate (41%) and the spouse's marginal rate is 20%.

Can the rental income from an investment property not be assessed as income to the spouse only? This should reduce the tax due in total for the couple
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Yes, as long as you get the spouse's name as the landlord on the rental agreement. That's the advice I've received from my advisor and I will be doing my tax return on that basis.
 
Don

I wanted to do this and decided to take advice to be certain. My advice came from the senior tax partner from one of the big firms (my uncle). He checked it out for me, and came back to say I couldn't do it.

In order for the income to be put in her name, i would have to transfer the house and the mortgage into her name, and then it might be possible (the rev could claim I was avoiding tax, but unlikely as it no different from shifting any asset class into a spouse name)

Maybe the rev have relaxed this since 4 years ago, I doubt it somehow. At the end of the day, it will only be tested in the event of a tax audit, and if your adviser is wrong, the revenue will want their money.

I'd be delighted to be proven wrong on this one, so any tax advisers out there that can shed any further light on this ?

Niall
 
I suppose one could decide between husband and wife that the rental income belongs to one of them - why not? Just because you pay less tax this way doesn't make it tax evasion. For examply if I go and collect rent from a property and I spend it on a holiday etc for myself isn't the rent mine?
 
Niallymac said:
Don

I wanted to do this and decided to take advice to be certain. My advice came from the senior tax partner from one of the big firms (my uncle). He checked it out for me, and came back to say I couldn't do it.

In order for the income to be put in her name, i would have to transfer the house and the mortgage into her name, and then it might be possible (the rev could claim I was avoiding tax, but unlikely as it no different from shifting any asset class into a spouse name)

Maybe the rev have relaxed this since 4 years ago, I doubt it somehow. At the end of the day, it will only be tested in the event of a tax audit, and if your adviser is wrong, the revenue will want their money.

I'd be delighted to be proven wrong on this one, so any tax advisers out there that can shed any further light on this ?

Niall
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Hi Niallmac, I checked again with my tax advisor, he works for a big tax consultancy in the south and he reconfirmed that they have many clients who have rental lease's in the non-working spouses name and they are ablke to avail of the lower tax rate on the rental income.
 
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