HELP please with NT Tax/letting

[mustlovedogzz]

Can anyone tell us - my husband works abroad and is a Non Tax Payer. By registering as a landlord (jointly with me, his wife) does that mean his Tax Code will change?

(We are renting out our house and going abroad full time for a few years)

We want him to remain "NT Tax Coded" - so, to avoid any problems should I take on the whole letting.

OR - is earning on a property SEPERATE from his job Tax Code??

The rent WILL NOT COVER the mortgage and other costs, so we will not ACTUALLY be making a profit.

We have to note a "Tax Reference Number" on the Landlords Information Sheet. - Should we leave his out (Which apparently shows he is a Non Tax payer) and use mine? (Do I have one as a Housewife??)

We hope someone can help us with this dilema please. Thank you.

[russ295]

we do have our very own tax expert on here, be paitent and she will reply.

russ

[mustlovedogzz]

Great Russ, thanks. I hope she isn't too far away.

We spoke to our Tax office, (the girl sounded about 12 yrs old) and will attempt to find the exact details on their web page. But want to hear all the options from all you "old hands" (excuse the pun )

She says his tax code for his job shouldn't be affected. But we want to know all the ins and outs.

Jane

[GPEL]

Slightly off topic but don't forget that all owners of a UK property receiving an income while living overseas should apply for an exemption as a non-resident landlord. Without this you cannot be paid gross rent as 22% has to be deducted at source. Not sure of regs for registered NT but you would need it for yourself regardless of personal situation. If not obtained, your tenant or agent has to deduct it from the rent due. The exemption is easy to apply for and can be done anytime but submit early as the IR take about 3 months to process. You still pay normal tax on profit at end of FY, all things considered, but without the exemption you have tax deducted monthly on rent and have to claim back any overpaid tax at end of FY, which is more of a pain. Further details and application form on the IR website. Search for the Non-Resident Landlords Scheme. Easy and worthwhile doing.

[mustlovedogzz]

Thanx GPEL, every little bit of info helps. I cant believe its 22% we aren't even covering the mortgage!!!

Are you the Tax expert we have been waiting to hear from??? (Or is there more to come I wonder???)

We are going to investigate your advice tomorrow on the IR site. thank you.

[GPEL]

No not the tax expert, just know something about NRLs. Percentage is only deducted from source if exemption not given by IR. If exemption given, then your YE tax liability depends on your total income and expenditure, all things considered.

[plym77]

Hi... sorry I am late!! haha

My name is Sherena and I am the tax expert here (thanks for the heads up Russ), I am a Chartered Tax Adviser and a property tax expert - my apologies for the delay, I have been enjoying a little time off for Easter.

Now in repect of your query....

Your tax code is used for employment purposes. HMRC do sometimes try and collect tax on expected rental profits via a tax code, but as a landlord you are subject to self assessment (ie. prepare tax returns) and so if they do try and collect via a code you are well within your right to ask for the rental to be removed from your code as you are under self-assessment.

If you have not already done so you must register to prepare a self assessment tax return each year which reports ALL income (not just rental profits/losses) by tax year (ie. 6 April to 5 April next). You must register for a self assessment tax return by 5 October following the year in which you first rented your property - so for example, if you started renting it say 10 march 2007, then register by 5 October 2007, if you didnt start until 10 April, you would need to register by 5 October 2008.

If the property is in joint names then you must both prepare a tax return showing equal profitslosses. If you want to show the rental profits/losses on only one return then you will need to change the ownership of the property from joint tenants to tenants in common, at which point you can then 'gift by declaration of trust' a share of the property to the spouse. By doing this by Declaration of Trust (prepared by a solcitor), rather than Land Registry, you should not cause any problems with your mortgage company.

You say that your mortgage will not cover the rental - but be careful as it is only the mortgage interest that is an allowable deduction against your rental income - not the capital repayment element of your payments. However there are various other expenses you may be able to claim, for example 10% of net rents (ie. rent, less coucil tax and water rates) if the property is furnished.

If a loss is made, do remember that unfortunately this cannot be used against other income - only the rental business.

GPEL is right, as a non-resident landlord, an agent (and if no agent - the tenant!!! and who wants the tenant collecting tax!!) will deduct 22% to be retained and used to credit against your tax liability for the tax year, however, if you complete and submit form NRL1 you should be able to stop tax being deducted at source. Form can be found:

http://www.hmrc.gov.uk/cnr/nrl1.pdf

Also - dont forget that when you go abroad (and this isnt specifically related to landlords), you must complete form P85, which can be found:

http://www.hmrc.gov.uk/cnr/p85_p85s.htm

If this has been your Principal Private Residence and your husband is going abroad to work then the house should continue to receive PPR exemption (providing you do not have another PPR abroad - ie, are not intending to buy to live in) and thus should not attract a Capital Gains Tax charge on sale for that period, PROVIDING on your return, you return to the property as your PPR (some exceptions do apply).

There are various issues surrounding moving abroad, and whilst I can provide a general feel for your situation, I am unable to advise specifically outside of engagement as your accountant/ tax adviser. If you would like to talk to me more specifically about your tax affairs, please do feel free to email me for a competative quote on sherena.glanton@horwath.co.uk

In the meantime, I hope the above information proves useful

Kind regards

Sherena Glanton CTA

[mustlovedogzz]

WOW Sherena, thanks soooo much for all that. Its a bit too much to take in for now so am going to mull it all over (along with the 88 PAGES i've just printed off from IR website re: NRL for a while.)

So much for deciding to stay away for a year or two. Beginning to be more hassel than its worth ( i think???)

[plym77]

no problem

there is a bit to think about... but hopefully where you are going is nice and hot so it will all be worth it !!

i check in here most days so if you have any other general tax/accounting queries I will do what I can to help

Regards

Sherena