Property Help

KaelaHKaelaH Well-KnownPosts: 131FMAAT, AAT Licensed Accountant
I am helping a relative with his Self Assessment on his property. I currently have no experience with Properties so need some help with this.
He's split up with his partner and is renting the property until they sort out selling it, its currently in negative equity which is why they haven't sold it.
They have a repayment mortgage. The rental on the property purely covers the cost of the mortgage and insurance cost with only around £400 per year left over. This is used for repairs and maintenance that is needed.
I know that they cannot take into account the capital repayments but this means that they will need to pay a fair amount of tax over for money that they, in effect, haven't got.
What course of action does he need to take?

Comments

  • T.C.T.C. Experienced Mentor Posts: 1,448Registered, Tutor
    He will need to fill out a TR. The profit will, presumably, be split between he and his partner, so that shouldn't be quite so bad. You would need to do a P & L first and see what sort of profit is involved. See "Low Rental Income" post below.
    The fact that he can't afford the tax is not your problem.
  • PGMPGM Font Of All Knowledge Posts: 1,954Registered
    As Jodie R in another thread, if your profit is under £2500 you don't need to fill in a TR

    http://www.hmrc.gov.uk/sa/need-tax-return.htm

    If you don't already complete a tax return, you'll need to do so if you receive any of the following:

    • £2,500 or more income from property (after deducting allowable expenses)
  • imeldabyeimeldabye Well-Known Posts: 147Registered
    Even if they are not required to submit a return (being under £2500) they would benefit in future years by carrying the loss forward therefore I would suggest filling in a return in regardless in order to record the costs and loss.
  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    I was under the impression there was a profit, not a loss.

    I would guess that you could carry any loss forward via letter as opposed to a SA100 if needed - just because it's been 'simplified' doesn't mean the law has changed in terms of loss relief - I expect this is just a new HMRC policy as opposed to a change in the law, though as I've not looked into it yet myself I don't know for sure.
  • KaelaHKaelaH Well-Known Posts: 131FMAAT, AAT Licensed Accountant
    Thanks for advice so far

    Having looked more into it I have worked out his profits.

    Unfortunately, he hasn't filed a tax return for this before and has been renting the property since April 2009 so I'm guessing there will be some sort of pentalty for not filing last year?
    He's hopeless with reciepts so any expenditure for work done to the house cannot be claimed as he has no proof.
    Both years have netted, after capital repayment is taken off, just over £5000 profit. Therefore split between him and his partner just over the £2500 limit.
    He already does a SA as he's self employed so that in itself isn't a problem but having to find £1000 for income not physically earned will upset him. I am guessing a relief on this tax paid would come if the property is sold making a loss? They are looking to transfer property to his partners name this year as he wants out.
  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    I'm afraid there won't be any relief on sale with respect to income tax, as that would be capital gains tax (depending on PPR exemptions available).

    Yes, there may well be penalties for late declaration. If he already does a SA, then it wouldn't be a non-filing penalty, but whatever applies to an error instead.

    Unfortunately he has paid off part of his mortgage with the rental income and so the tax is due; he has a bigger share in the property (or rather, less negative equity) thanks to the income. I know that will not be much comfort to him though... :(

    Regarding expenditure that can't be claimed, if he can get approximate dates and work done (and the condition of the house will reflect that the work did indeed happen, because it's tangible) then make a note and bring in those amounts. Most reasonable HMRC inspectors should allow it. Can he check bank/ credit card statements?

    Make sure when the property is transferred that he gets a fair deal if possible. Make sure also that if it gets transferred to their name, then the mortgage also is! No point being liable for the mortgage if he doesn't own part of the property any more - the two are separate issues.
  • KaelaHKaelaH Well-Known Posts: 131FMAAT, AAT Licensed Accountant
    Thanks Monsoon

    Its a horrid situation especially as he's pretty sure his ex-partner hasn't been declaring the property either.
    It will be a non filing penalty as this is his first SA for self employment (started Jan 11)

    As for the disposal of the property, thats a whole other can of worms!!

    Thanks again
  • KaelaHKaelaH Well-Known Posts: 131FMAAT, AAT Licensed Accountant
    Right, I've finally got all the paperwork relating to the property and it appears that the profit after deducting Capital repayments is £4736 therefore his half being less than the £2500 limit at which you need to declare income on Self Assessment from what I'm understanding.
    I had spoken to the tax office previously who told me that he should declare it on a Tax return for 2009-2010 and that this would be available for him to select online. However, this option isn't there, I'm assuming this is because he only registered for SA during 2010-2011.
    Am I right in assuming then that he hadn't needed to submit a Self Assessment but should have declared this another way. How should he do this? SHould he write a letter stating the income for 2009-2010 and will they then send him a bill for the tax due (and possibly a fine given the lateness)? I have done some searching but can't really find any guidance for declaring this, although one site did mention a P810.

    The other thing, I am helping him with his 2010-2011 Tax return (late I know due to the fact that his paperwork has more holes than swiss cheese!!) and again, i am filling in the property section. With the fact that he owns 50% of the property, do I just fill in all the boxes with 50% of the actual figures? ie half the income, half the expenses etc.
    Sorry to be so vague, this is one hell of a learning curve lol!
  • BluewednesdayBluewednesday Font Of All Knowledge Posts: 1,624Registered
    Do you mean interest repayments are being deducted from profits, capital payments are not deductible.

    Yes fill out the return with half the actual figures and cross the box that says that the properties are let jointly with someone else.

    I don't think you can file using their online option if no tax return has been issued but you can do it via software.
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