? tax due on Rental Income not declared if I now move in

by **hagen** on Sat Mar 13, 2010 12:07 pm

I have Two properties. One I live in with my parents (mortgaged)
I am single and both properties are in my name.
The other i bought as a BTL Jan 2008 and I let out until 1 Jan 2010.
I was intending to let it out for a year or so until I married and moved in with my then partner but we have since spit up.
I am now considering moving into the flat on my own whilst I do it up to sell it. and in the current market it may take some months!
I have not declared or paid any tax on income on this second property.

My questions are

What penalties will I face from HMRC
If I now make the second property my PPR, can any previous property tax or cgt liablities to this property be waivered
will I have to declare my first property as a rental property (as my parents will continue to live in it)
If so, they will be paying my mortgage for my, so who or what do I declare that to?

by **Peter D** on Sat Mar 13, 2010 2:39 pm

Did you actually make any profit renting the property out as that profit will be the basis of the penalty. Moving in for a relatively short period of time but then moving back in to your original home will be a bar to and PPR claim on the flat. Add to that that is not your intention to make it your home and move in lock stock and barrel and you put it up for sale then any attempt to declare it as your home/PPR is most likely to fail. Why would your first property become a rental property as your parents are not renting it and you probably have most of your furniture in it. Regards Peter

by **Peter D** on Sat Mar 13, 2010 2:42 pm

By how much has the property value risen since you bought it. Regards Peter

by **Ray Coman** on Sat Mar 13, 2010 4:21 pm

Regarding your rental income, you should declare this to HM Revenue & Customs. Costs can be deducted from rental profits subject to tax. You have not indicated whether the BTL property is mortgaged. If so, interest on this property can be deducted. For tax purposes, you would be well served to consider re-financing since you cannot get tax relief on the mortgage interest on the home that you live in.

You will face a penalty for late filing of a Tax Return, however the penalty will be reduced to the lower of the fixed penalty (or tax geared penalty) and the actual tax liability. If your costs are high then the liability will be low. The liability for 2007-08 is not likely to be as high, since the property was only let for 3 months. Note that rental income of this sort is not subject to national insurance.

Regarding PPR, as already noted, HMRC is likely to deny relief unless the property was genuinely being used as a main residence. If your own correspondence (including correspondence from HMRC) was never sent to the property once a BLT then this will be hard to support.

PPR may be an irrelevant consideration since if the total of your gains for the tax year are less than your annual exemption (£10,100 for 2009/10), then you you would not be liable to CGT on any gain related to the business property anyway.

I hope this helps.

by **mullet** on Sun Mar 14, 2010 9:16 am

If I now make the second property my PPR, can any previous property tax or cgt liablities to this property be waivered (waived)

CGT liability - there is no potential liability until you sell this property. Becoming or ceasing to be a main residence or BTL are not chargeable occasions.

Income tax liability - of course not.

As other replies have stated, contrary to popular belief you cannot move into a property just to make it your PPR shortly before selling it. There is no magic period of occupation which makes a dwellinghouse a residence.

by **hagen** on Sun Mar 14, 2010 1:50 pm

I purchased the 2nd property for 93k
I got a 85% btl, interest only, 2 year fixed mortgage at 5.49% which stopped in dec 09. Iam currently paying 2% above bank rate.
I also got a loan of 15k from my parents to pay the 15% deposit which I pay back at 5%
I received 6 months x £450 rental income
5months x £450
6months x £460
7 months x 400
The flat has been vacant since 1 Jan 2010
I have paid £750 legal fees

Neighbouring/similar properties have been not been selling in this area or have been selling for 85-90k.
Although I would sell immediately if I could, but I forsee me having to live in it for AT LEAST a year mabey 2. because I would not want to sell for less than I paid for it.

So if I lived in it fully, but put it up for sale within 2 months , even if it took 2 years to sell, would that still be regarded as not being my ppr.

The reason I asked about declaring money paid to me by my parents to cover the mortgage payments for the first property is,
1 I wouldnt be living in it at all - I would be living in the 2nd property with all my "worldly goods"
2 I am not sure about the mortgages because I understood, I could only have one mortgage for a ppr
As the 2nd property would no longer be a btl.but would be my ppr.
Would I not have to declare income from the 1st property

by **hagen** on Sun Mar 14, 2010 1:57 pm

I earn £18k per year salary, is this included as a gain from my annual exemption for cgt purposes

by **Peter D** on Sun Mar 14, 2010 3:48 pm

Only you can tell us if you actually made a profit on renting the property out. That is the gross rental income minus all the interest payments made on the loan and the mortgage during the rental period.

If you move into the property genuinely as your home for at least one year plus and all utility bills are addressed to you at that address and DVLA, bank and HMRC contact address is there then it should become your PPR and the last 36 months will be exempt from CGT. For instance, if you live there 2 years then that leaves only 12 months of the PPR exemption and if the property has not risen significantly then there will be no CGT liability greater than you CGA of £10,100.

Moving in and putting it on the market quickly can jeopardise a claim to PPR as it clearly shows it was not your intention to make this your 'Home'. How they find out is a another matter.

Regards Peter