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Where Taxpayers and Advisers Meet

Rental Income Tax - CGT Taper relief

Geo
Posts:11
Joined:Wed Aug 06, 2008 3:04 pm

Postby Geo » Thu Jul 10, 2003 5:14 am

My partner and I bought a property jointly in 1987 and lived in it until 2002; we then rented it out and moved into a second home I had bought in 2001.

Firstly, as we are joint owners of the rented property can the rental income be attributed to either partner or does it have to be split 50/50?

Secondly, the plan was to use the house as a pension fund and sell in 5-10 years time, how would CGT taper relief etc. be applied in this scenario.

timbo33
Posts:12
Joined:Wed Aug 06, 2008 3:04 pm

Postby timbo33 » Thu Jul 10, 2003 9:05 am

As the rental property was your principal residence initially, the first three years of rental are exempt from CGT. Thereafter taper relief will apply but taper relief on individual assets is worthless until a further 3 years have elapsed and after 10 years reduces the CGT by only 35%.

Better if you can make it a business asset in some way, either by setting up an investment company or using a Funded Unapproved Retirement Benefit Scheme (FURBS) if possible as this reduces the gain by 75% after 10 years.

Re rental income, if owned jointly, the revenue will regard the income as joint (like a building Scociety account). You can rearrange the ownership proportions by effecting a tenancy in common so that you each have a definable share.

As you are not married you would need to be careful of transferring any equity as this might be liable to CGT, though the 3 year rule should avoid that. The benefit of doing so would be to take maximum advantage of basic rate relief for income tax (assuming you are not already both high rate taxpayers)

Geo
Posts:11
Joined:Wed Aug 06, 2008 3:04 pm

Postby Geo » Fri Jul 11, 2003 12:33 am

As I already run my own limited company (totally unrelated to property) what would be the advantages / disadvantages selling the house to the company after the initial 3 years rental.


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