Joint Ownership / Joint Self Assessment?

[Peeps54]

Hi, brother and sister-in-law have purchased a buy to let from monies received from a personal accident payout

as the income from the property is low, is it best to register just one person for self assessment and if needed register the

second it tax allowances are needed to cover?

many thanks Paul

[Richlist]

Not necessarily.

1. Is there a mortgage/ loan on the property ?

2. What are the marginal tax rates currently paid by brother & sister in law ?

3. Are they & the property in the UK ?

[Peeps54]

1. No mortgage as the funds had to be invested to cover loss of pension when he retires

2. Brother receives some money from the government due to the loss of use of his arm (caught a flesh eating disease and nearly died)

sis in law has cancer of some sorts so in receiving government benefits, so as this is their first year of doing this I expect the marginal

tax rate will be the lowest rate.

3. Yes both are in UK

as the 'profit' will be a loss I can not see any point doing it as a joint self employed as this year will show a large loss as the property has had to

be brought up to a livable state

/--- Paul

[Richlist]

Take a tip....never make any assumptions where property is concerned. Your post suggests that you are making assumptions and they are wrong.

1. Even if there is a loss it must be declared on self assessment tax returns . That loss can be offset against profits in following tax years.

2. There are lots of different taxes .....not all expenses can be offset against income tax. If they have incurred expense on the property before letting some of it, perhaps all of it, will not be an allowable expense against profits. That expense should be offset against future capital gains when the property is sold.

3. If the property has been bought in joint names HMRC will expect declared income, expenses & profits on a 50:50 basis. If you want to change that you need to see a solicitor to get it formally changed.

Sounds like they may be better going to see an accountant to handle their 1st year and to deal with the above. After that things should be more straightforward and easier for them to deal with themselves.

[Peeps54]

Many thanks, no assumptions as all calcs have been done and an initial loss of £18k, I have all the expenses sorted into what they can claim and cant, so ok there, all the expenses were on renovating the property to latest regs.

The biggest area that I found vague was the joint part, as you mention 50/50 that seems the most logical

many thanks for your assistance

[Richlist]

Many thanks, no assumptions as all calcs have been done and an initial loss of £18k, I have all the expenses sorted into what they can claim and cant, so ok there, all the expenses were on renovating the property to latest regs.

I STILL THINK YOU ARE WRONG.

HMRC view the situation as follows.....here is an example.....you can buy a property for £100K that needs no money spending on it OR you can buy a similar property requiring work for £70K and spend £18K renovating it. In BOTH cases the expenditure is capital not revenue and in both cases the expense cannot be offset against income tax.

So, your £18K loss probably isn't really an £18K loss.

The biggest area that I found vague was the joint part, as you mention 50/50 that seems the most logical

The best way to understand this is that there is a difference between legal ownership & beneficial ownership (receiveing income from the property). Its possible to own equal shares 50:50 in a property & at the same time have a 1:99 (or any other split) share of beneficial ownership but it needs to be documented & there is a process to follow. It works best where one partner is a 20% tax payer & the other is a 40% tax payer..

[Chestnut]

RL's advice is absolutely correct in my view. I have a jointly owned investment B t L and have looked into both these aspects in the past.

I too recommend you to consult accountant about HMRC allowable loss expenses, especially in first year, and solicitor about ownership split. But make sure they both know this subject - make no assumptions on professionals' knowledge! The rules are often updated at government annual budget time.