Renting property to ex-h

[nocakeformeplease]

Ex-H and I split up on 2003. We owned a property (in my name) with about £130k of equity. We agreed that he would stay in the house and we would remortgage in order to release my share of the equity. Unfortunately his credit rating at the time was poor and was unable to take over the mortgage so I got a buy to let mortgage on the property and effectively rented it to him. We agreed that we would do this for 5 years or until he was in a position to get a mortgage if sooner. This was documented in the divorce papers. As it happens he still hasn't brought the property off me but will most likely want to in the near future.

We agreed a set amount 'rent' per month which was to cover the (repayment) mortgage and a few other bills on the house that were still coming out of my account. This was less than the market value rent as the arrangement was purely to enable him to stay in the property and was all he could afford at the time. At the time I was probably making a £200 loss per month (I realise for tax purposes you can only deduct the interest on the mortgage not the capital repayment so on paper technically probably made a smaller loss). As time has gone on the mortgage has come down significantly meaning on paper I am probably now making a gain.

I have two questions

1. I haven?t ever declare the rental income for tax. My reason originally was that I was making a loss and as it was agreement between ourselves purely to allow him to stay in the house - I didn?t want to unfairly claim a loss to be offset against my other income. Now of course it is probbaly a gain so should I be declaring this?

2. When ex-h is finally in a position to take over the mortage, what is the best way for us to do this so that he pays as little as possible in CGT?

Many thanks

Sorry, just to be clear in point 2 is whether I can 'gift' ex-h the equity value (he would get a mortgage for the balance to replace my btl one). When I brought my own house, I mentioned this to the solicitor an she seemed to think there was a way I could do this without triggering CGT.

"This was documented in the divorce papers"

What does this mean? Did you get a financial consent order?

You need to be specific about the precise terms of the order or agreement.

Answer to 1. is of course you should declare a profit.

Answer to 2 is that the CGT bill will be yours to pay, not his, but I'd need you to answer the ? above before I could answer properly.

No I dont think we got a financial consent order - the only asset we had was the house and there was no dispute about anything (we both used the same solicitor). She just said that she noted that this was our intention with regard to the house, I'm not sure it was anything legally binding.

I realise that the CGT will be mine to pay but as I only did this to enable him to stay in the house we have agreed that any tax I have to pay (income and CGT) will be deducted from the sale proceeds.

I am not trying to get out of paying anything, but I would like to minimse what ex-h has to pay as it was never intended as a business transaction, just to allow him to stay in the house.

you supposed to declare the income even if technically it is a loss.

You should get a financial consent order drawn up. The solicitor cannot have acted for you both.

Consult a solicitor about whether the property was beneficially owned by him after you remortgaged. Not sure how the evidence of you renting it to him squares with this.

It's a bit of a legal mess TBH.

wait... it's a lot of a legal mess.

Take some proper professional advice.

Thanks for your comments.

The solicitor did act for us both - they said it was unusual but possible as long as there was no dispute over anything. They sent copies of all correspondance to us both (I had moved out by then) and we split their costs 50%/50%.

I will of course take some professional legal advice.

With regard to the rental income, I didn't want to claim a loss unfairly in the beginning as we had arranged this situation for our own benefit and then to be honest I had just put it all to the back of my mind. It only occured to me recently that I am probably making a small profit on this now. I will contact HMRC and let them know of the situation. I have done some quick calcs and it looks as though I may owe about £3-4k over the last 7 years - I realise of course there will be interest on this.

With regard to the house itself, I realise with hindsight that we could have dealt with this better, but at the time things were very emotional and our only concern was that he didn't lose the house. I will contact ex-h and arrange for us both to see a solicitor and talk through the best course of action.

Perhaps I am not explaining it very well as when I discussed it with a solictor who dealt with my own house purchase, she didn't seem to be concerned about it at all and seemed to think there was quite a simple way to sort it out.

I guess worse case, the house is legally mine and when we come to sell I will need to pay the CGT and any other tax due and deduct this from what he is owed. I agree it is a mess but not something we cant sort out, especially as (fortunately) we are still amicable and there is no dispute.

I am very curious now as to how the solicitors were able to act for us both and if there are any consequences of them doing so? (FWIW they are a fairly large, reputable firm (5 offices in this area and one in central London).

I knew it wasn't the norm but I didn't realise they weren't allowed to. asically we asked them to act for both of us as we were in agreement about everything and just wanted everything made legal - as stated previously they said they could do so but if at any point we disagreed about anything, one of us would have to change solicitor. As neither of us have any legal experience or knowledge we didn't question this.

That aside I have spoken to a tax accountant today to sort out the rental income and will speak to ex-h to arrange to get some professional advise re the ownership of the house.