2nd property rental/sale

[bragg777]

Here goes and I'm dreading the reply.

I bought my Grandma's house in 1990. It was an ex council house which she bought for £15,000 with me as the guarantaur. She died 2-3 years later and left me the house in her will. I have been paying the 15 year mortgage for £15,000 the whole term. For the last 10 years I have rented the property to the DHSS and get £300 a month. I was always lead to believe it didn't make enough to declare tax. I have thought about selling the house in 6 months time as I think it's value is now around £70,000. For the first time in my working PAYE life I have received a 2002-2003 tax return and have no idea what to do next.

Do I need to put it down with rent only £3600 pa?

If I sell I am liable for ££££££'s as I'm in a higher tax bracket?

Why have I suddenly got a tax return?

Is it worth selling the property to my wife as she works part time and earns £7000 a year?

Thanks
Bragg777

[accountant@uktaxshop]

Bragg,

Well lets do the biggest number first.

CGT

If you sold the property the gross gain of £55,000 will be relived by some minor indexation allowance, and taper relief. This would leave you with a gain of some £28,000 after your (joint) personal allowances. This would be due at your marginal rate of tax. There would be some options for spreading ownership between you and your wife to minimise the gains, as well as some other options if you hold the property in the longer term for reducing you gain.

Income Tax

Yes you do need to declare the income. The reason for the tax return could be that you are now a higher rate tax payer, the IR anticipate you where a higher rate tax payer, or they have finally noticed that the DSS are paying a landlord who has not declared his income for 10 years !

There will be expenses you can put against the bill - ie mortgage interest, although this is not going to amount to much in the 13th year of a small 15 year mortgage. These deductions will reduce your income tax bill.

The next problem you have is the past years when you did not make the claim. You do need to declare this income.

If you need some help getting out of this situation please let me know - you only have a few days to complete the tax returns yourself for this year before fines arise for late submission.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

[TSL]

Bragg

Fingers crossed that you have received a tax return to complete as you are a higher rate taxpayer as opposed to the Inalnd Revenue realising you are in receipt of rental income.

With regard to the 2002/03 tax return you will need to include gross rents of £3600 on the land and property pages. However, these pages should also reflect any expenses incurred 'wholly and exclusively' for letting purposes e.g. mortgage interest, repairs, gas safety check etc. Any rental profit will be subject to tax at 40%!!!!!

Selling the property will attract capital gains. The gain will need to be carefully calculated to maximise available reliefs. You should plan carefully before selling the property to minimise the gain i.e. transfer the property to joint ownership with your wife (transfers of assets between spouse's does not attract a capital gains charge.

I suggest you come clean regarding the undeclared rental profits. This will mitigate Inland Revenue interest and penalties!!!

Action needs to be taken immediately and If you need assistance to relieve you of this headache please conatct me.

Jason Sharp
Taxation Solutions
info@taxationsolutions.org.uk
Tel:01159 568017

[bragg777]

I have been on higher tax for a number of years now.

I had a letter recently from the IR saying my records had moved from somewhere to my local town.

I rang them yesterday saying why do I need to fill this in as I never have before. I was told at work that other employees like me have company cars and private medical insurance have received forms.

The woman at the tax office told me not to worry it's just because I'm in the higher bracket and it's now standard practise to send them out??

[accountant@uktaxshop]

Bragg,

In general terms higher rate tax payers need to complete a self assessment form every year.

You need to submit the form by 30th September, or by 31st Jan 2004 if you (or your advisor) are completing the tax computations. Failure to do this will cause a £100 fine to arise.

You do of course need to address the issues above regarding your rental property.

[TSL]

Bragg

Higher rate taxpayers find themselves having to complete self-assessment tax returns as there is often additional tax to pay on company benefits and investment income etc.

As well as declaring your salary and company benefits on the tax form you will need calculate and declare the rental profit!!!

Your return must be submitted to the Inland Revenue by 31/1/04 at the latest to avoid fines!!

I will be happy to assist you with your 2003 self-assessment obligations and more importantly ensure that you pay the minimum amount of tax on your rental profits.

Jason Sharp
Taxation Solutions
Tel: 01159 568017
info@taxationsolutions.org.uk