Rental Income Taxation

J

Jwall

Guest
I have been reading the posts on this excellent website for the last few weeks now. They have been both informative and eye opening to say the least. I say eye opening as they have made me see the error of my ways. Let me explain

My girlfriend and I bought a house together 2 years ago. It was in a state of disrepair. We moved in and spent a couple of months upgrading. When the repairs were complete we both moved back to our parents and rented the house. It has been rented since then.

We only payed Owner occupier Stamp Duty and have not payed any Tax on the rental income. Our tenants pay the rent directly into our bank account ( the same account the mortgage comes from) My girlfriend has since both a second property where we both now live together.

I can now see that this is totally wrong and want to do everything legit. ie. pay Tax on the rental income. If I pursue this will I now be liable for all the back Tax for the last 2 years and / or penalties from Revenue? I dont think she will be willing to do this if it means paying all the back taxes for the last 2 years!!
 
You should contact an accountant/tax advisor and get them to review your affairs and prepare a submission to Revenue rather than approaching Revenue directly. The money would be well spent and may yield savings (in the form of tax liabilities and interest/penalties mitigated through judicious "after the fact" tax planning) in excess of the costs of going direct. Continuing to evade tax liabilities because they might be onerous (particularly with interest/penalties) is not a good idea either and may just be deferring the day of reckoning and increasing the ultimate costs.
 
Contact revenue or get professional advise immediately.

First of all you will have to pay stamp duty at the investors rate.
Then you will have to complete tax returns for 2004 and 2005.
The return for 2004 should have been paid by 31/10/05.
The final return for 2005 will not be due till 31/10/06

your return would be something along the following lines
Assumptions Purchase House 300,000
Interest rate 3.5%
Fixtures / Fitting: Furniture etc 5,000 This can be written off over 8 years
Expenses in improvments to house prior to letting is not allowed but can be claimed against CGT when selling property.
Decorations etc between lettings are allowed. If you get someone to do the work for you get a receipt. If you are doing the work yourself hold onto receipts for paint etc. You may have to produce in the event of an audit.

Rental Income 12,000

Less Expenses

Mortgage Interest only 10,500
Fixtures & Fuittings 625
Insurance 500
Bins 300
There are other expenses but these are the main ones
If you employ an accountant this can also be claimed here
Total Expenses 11,925

Profit 75

Tax @ 20% or 42% depensing on what rate of tax you pay

As you can see in this example the amount are small but better to get it sorted now. Things can change very quickly.

Your tenants can claim rent relief and it is only a matter of time before revenue catch up with you.

Hope this makes sense.
Also do a search using the search facility on AAM

Post crossed with Clubmans
 
You must log in or register to reply here.
Back
Top