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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
Satisfied Customers: 3656
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based)
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My wife & I own our house as tenants in common. We are planning

Resolved Question:

My wife & I own our house as tenants in common. We are planning to take out an interest only equity release lifetime mortgage in order to build an extension to be occupied by our daughter and her family, for which they will pay us a rent sufficient to cover the monthly mortgage interest re-payments. What is the situation with regard to income tax?
Submitted: 1 year ago.
Category: UK Tax
Expert:  taxadvisor.uk replied 1 year ago.
Hello and welcome to the site. Thank you for your question.

Please advise what rental income you expect from your daughter?
What is your mortgage interest repayment likely to be?

many thanks
Customer: replied 1 year ago.

£500 per month in both cases

Expert:  taxadvisor.uk replied 1 year ago.

Thank you for your prompt reply.

First of all, both of you will have to declare your share of property income in your respective tax returns.

Your monthly rental income of £500 gives you an annual income of £6,000.
Had this figure been up to £4,250 per annum you could have opted for Rent a Room scheme, you need to to tick a box on the tax return and no more information required. Also,no tax would be payable.

More information on Rent a Room scheme can be found here - helpsheet hs223. You may find notes on Page UKPN 2 (Box 4) and page UKPN 4 (Box 7) helpful
http://www.hmrc.gov.uk/helpsheets/hs223.pdf

You say your mortgage interest on the loan to build the extension would be equal to rental income. In this case, you should file supplementary pages SA105 - Property with your tax return. You can offset the interest on loan covering extension so long as you have rental income.

Although there may be no profit from property income, property income should be declared as it is chargeable to income tax.

More information on SA105 - Property can be found here
http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=OSWvtKIMh2c&formId=3187

If you don't file a tax return at present , you should register for self assessment to enable you to file a tax return. You will be issued with a Unique tax reference number and you quote this number on all communications with HMRC.

More information on self assessment registration can be found here
http://www.hmrc.gov.uk/sa/register.htm

I hope this is helpful and answers your question.

If you have any other questions, please ask me – I’ll be happy to respond.

taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
Satisfied Customers: 3656
Experience: FCCA - over 35 years experience as a qualified accountant (UK based)
taxadvisor.uk and 4 other UK Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thank you. Are you in effect saying that if the rent equals the interest re-payments there will be no tax payable?

Expert:  taxadvisor.uk replied 1 year ago.
Hello, thank you for your reply.

If the rental income equals your costs associated with that income, then there is no profit and therefore no tax payable.

I hope this is helpful and answers your question.

If you have any other questions, please ask me – I’ll be happy to respond.

Expert:  taxadvisor.uk replied 1 year ago.
Thank you for accepting my answer.

Best wishes.
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for the bonus.. greatly appreciated.
Customer: replied 1 year ago.

Sorry. I did rate your service as excellent. It seems f I do it again I will have to pay more. What elseshould I do?

Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply.

You do not have to do anything. I was acknowledging your appreciation.

Good luck

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