Income tax on rental income & joint tenancy vs. tenancy in common + Buy to let mortgage

[JAP]

Hi - My husband has recently inherited his late mother's house, which we are currently renting out to tenants and receiving a monthly rental income. My question is how do we stand with regard to paying tax on this rental income. My husband is a higher rate tax payer and as I don't work we were wondering whether I could use my personal tax allowance against this rental income and pay tax at the standard rate. My next question is - Do we need to arrange for Assent of this property into joint names to do this and should this be in the form of a joint tenancy or a tenancy in common? We understand that having joint ownership on this property will also help with Capital Gains Tax if we decide to sell at a later date.

Another option that we have thought about is whether to take a mortage out on this property (property is valued at approx £130,000)so that my husband can claim tax relief on the mortgage interest payments. My final question is - if this is a viable option - would we be able to use the monies from this mortgage to pay off some of our mortgage on our main property (existing mortgage approx. £250,000).

Many thanks
JAL

[Lee Young]

To share the income, and therefore use your lower income tax rates, your husband will need to transfer one half (generally half, though does not have to be) of the property into your name. You will then be entitled to receive the same proportion of the income, reducing his proportion taxed at 40%.

Joint ownership would certianly help on the CGT position when the property is sold, as again it would make use of both your annual exemptions.

Income Tax not my area but I think you would only receive relief against the income from the mortgage interest payments if the mortgage were taken out to generate the income returns (ie a buy to let mortgage). You could of course use the mortgage to pay off your existing mortgage (in effect a remortgage, using a different property as security), but whether that gives you an advantge would depend on the terms.

lxy@m-b.co.uk

[CDavey9501@aol.com]

You can get tax relief up to value of property when first let out (regardless of what the funds are used for).