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Rented house - tax question

2 replies

akidu · 14/05/2010 06:37

Hi. My brother and I own a house (it used to be my parents house before they died) which we rent out. Now I want everything to be above board regarding the tax situation, so I intend to declare the income. However, Im not sure what to do about this - I had to spend about £3k on the place before I could rent it out (new carpets, repairs etc). My brother had no money, so I had to pay for it all and we agreed that I would receive all of the rent for the first 12 months or so, so effectively he was paying me back. Now I am not sure what to do, I don't really want to pay tax on the half that he owes me, it just doesn't seem fair. Should I just declare half of the rent or is that dishonest/illegal? Any advice welcome thanks x

OP posts:
LIZS · 14/05/2010 08:28

If all the income is yours, this year , you need to declare it. Unless you split the income you cannot split the liability. You can offset the maintenance costs against the income though.

Bechka · 14/05/2010 15:05

HMRC will see both the income and the outgoings, maintenance costs etc as received and incurred 50:50 by you and yor brother, as the property is in joint names, despite who may actually pay for what or receive what income.

This is to avoid the situation where, for example, home owned in joint names by husband and wife, and rented out. Woman pays top rate tax (40%), man pays basic rate tax (20%). They prefer to say 'the income all goes to my husband, my husband pays all maintenance etc, all should be taxed on him at his marginal rate (20%)'. Even though this is actually the arrangement they have, HMRC has specific guidelines for this scenario, and their take is that if a property is in joint names, all outgoings/income is deemed to be split 50:50, despite the fact this may not actually be the case. This blanket rule is to avoid a tax loophole.

In your situation, both you and your brother should declare 50% each of the total income, and claim 50% each of the maintenance costs. Hope the above is clear, if you call your local tax office they will be able to confirm.

One caveat would be that it may be possible to have it all taxed on you if you call HMRC, explain the situation, and request that under the circs they do not deem all the income and outgoings to be split equally, even though the ownership of the house is split equally, if this is what you would prefer to happen. Don't know what they'd say to that, but worth a go if that's the result you're after.

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