House Rental and the Tax Penalty
Thank you everyone for your positive replies - exactly what I was hoping for.
In my case, it's relatively simple in that it is our family home that we decided to rent whilst living in quarters a long distance away. We are not in the buy to let business and will move back into our house at some stage over the next few years. RBS who my mortgage is with, have no problem with SP doing this and my mortgage remains exactly the same as it was. I have had to register as a landlord and my buildings and contents insurance package has been changed to 'landlord' insurance which cost about 10% more than normal.
The rest is in the hands of the Letting Agency and I will just have to see how that works out. They were not very helpful on the tax questions I had other than telling me that I had to tell IR that I was renting. They also said that because our mortgage was in joint names, I couldn't rent out the property in the name of Mrs PA only. As Mrs PA is currently a housewife, I thought that may have been a way to reduce the tax burden?
Bottom line though and following the good advice above; keep detailed financial records of every transaction involving the house and find a good beancounter to dot the i's and cross the t's.
Thanks to all....
In my case, it's relatively simple in that it is our family home that we decided to rent whilst living in quarters a long distance away. We are not in the buy to let business and will move back into our house at some stage over the next few years. RBS who my mortgage is with, have no problem with SP doing this and my mortgage remains exactly the same as it was. I have had to register as a landlord and my buildings and contents insurance package has been changed to 'landlord' insurance which cost about 10% more than normal.
The rest is in the hands of the Letting Agency and I will just have to see how that works out. They were not very helpful on the tax questions I had other than telling me that I had to tell IR that I was renting. They also said that because our mortgage was in joint names, I couldn't rent out the property in the name of Mrs PA only. As Mrs PA is currently a housewife, I thought that may have been a way to reduce the tax burden?
Bottom line though and following the good advice above; keep detailed financial records of every transaction involving the house and find a good beancounter to dot the i's and cross the t's.
Thanks to all....
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As per a post above, my mortgage company wanted to increase my payments by 1% when we moved (and therefore let) due to service reasons. All it took was a letter and they waived this. I got the impression that both the 1% hike and military waiver were SOP.
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As per a post above, my mortgage company wanted to increase my payments by 1% when we moved (and therefore let) due to service reasons. All it took was a letter and they waived this. I got the impression that both the 1% hike and military waiver were SOP.
You may be interested to know that there are in the region of the thirty thousand active complaints with the FS Ombudsman over this surcharge (I have one of them), so they may find it gets stuck right back up them in the way loan insurance has.
I ******** hate banks. And that pre dates the credit crunch by about thirty years.
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If the house is in joint names and Mrs PA is not earning... then I think you will only need to pay tax on half of any profits, as she can use her tax allowance for her half. OTOH, if you make a loss on the property once mortgage interest, agent's fees and allowable expenses are included, then the downside is you can only offset half that loss against your salaried income. Either way, I think you'll not end up paying much tax.
On the issue of letting surcharges on mortgages, we were advised by a particularly good broker that we have used for the last 5 properties/mortgages to advise the lender from the outset that, because of my employment, we would be required to move on a regular basis and would therefore let the property. Our current lender got rather shirty about 18 months ago when we went abroad and proposed a 1.5% surcharge, plus a whopping admin fee to make our family home a 'buy to let' property. After a fairly long battle, the company agreed that we had disclosed our intentions when they agreed to mortgage our property so they waived the surcharge, waived the fee and paid us GBP500 to boot!
They also agreed to have the property independently valued (gratis) as it is a large Victorian property sandwiched between some much older terraced cottages in a National Park. When we considered a further advance, they applied the usual RICS formula and stated that the Loan to Value ratio was too high - based on an assumed market value distorted by the small terraces nearby. I protested and they agreed that they had made a mistake and hence a free GBP500 valuation. Result!
Bottom line, keep meticulous records of all expenditure (hard copy and electronic - scan all receipts as most seem to fade nowadays) and keep safe all correspondence with HMRC, your bank and mortgage lender - plus notes of all telephone calls and discussions - and get names!). A simple yellow treasury tag and a hole punch(raid the back of the Sqn stationery cupboard) and file everything sequentially. It builds a narrative! Be a good landlord - our property in WB was on the corporate let market for a number of years and although it was being professionally looked after I did pop in from time to time when I was in the area. It was nice to meet the tenants (and they made sure the house was spic and span knowing that I was visiting), and generally there were a few niggles that needed simple attention.
They also agreed to have the property independently valued (gratis) as it is a large Victorian property sandwiched between some much older terraced cottages in a National Park. When we considered a further advance, they applied the usual RICS formula and stated that the Loan to Value ratio was too high - based on an assumed market value distorted by the small terraces nearby. I protested and they agreed that they had made a mistake and hence a free GBP500 valuation. Result!
Bottom line, keep meticulous records of all expenditure (hard copy and electronic - scan all receipts as most seem to fade nowadays) and keep safe all correspondence with HMRC, your bank and mortgage lender - plus notes of all telephone calls and discussions - and get names!). A simple yellow treasury tag and a hole punch(raid the back of the Sqn stationery cupboard) and file everything sequentially. It builds a narrative! Be a good landlord - our property in WB was on the corporate let market for a number of years and although it was being professionally looked after I did pop in from time to time when I was in the area. It was nice to meet the tenants (and they made sure the house was spic and span knowing that I was visiting), and generally there were a few niggles that needed simple attention.
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Having a good agent and a good accountant is pretty important, especially if HM posts you to a place where it's not easy to take care of stuff like tax returns.
I had property let for about 15 years when I was working overseas, and reckon that the accountant covered her fees by what she saved us in tax. Perfect tax returns also will ensure that you are the "grey man", and HMRC will be less likely to take a deeper interest in your business.
I had property let for about 15 years when I was working overseas, and reckon that the accountant covered her fees by what she saved us in tax. Perfect tax returns also will ensure that you are the "grey man", and HMRC will be less likely to take a deeper interest in your business.
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CGT - selling a home.
Changing the direction of the topic a little.. if a serviceman/woman buys a house and rents it out because she is living in a Married Quarter, what are the rules concerning paying CGT when that house is sold?
If you own a house and don't live in it purely for service reasons, I assume that CGT is not accrued for that period, fair enough - in keeping with HMRC general guidance. But the moment that you can live in it and choose not to, or decide that regardless of whatever happens in the future you won't be living in it.. what happens to your CGT liability - does it start building up again and how is that point in time determined? How is HMRC able to put its corporate finger on a calender and say 'Aha Mrs X, you started accruing CGT.. then''. Can you live in a Quarter, own a home and sell it whilst still living in SFA and avoid CGT from when you rented it out and until you sold it?
There is lots of general guidance and quite a bit of contradictory anecdotal evidence on the web but by way of getting a perspective, does anyone have a military angle on this, ideally, based on personal experience?
Much appreciated.
If you own a house and don't live in it purely for service reasons, I assume that CGT is not accrued for that period, fair enough - in keeping with HMRC general guidance. But the moment that you can live in it and choose not to, or decide that regardless of whatever happens in the future you won't be living in it.. what happens to your CGT liability - does it start building up again and how is that point in time determined? How is HMRC able to put its corporate finger on a calender and say 'Aha Mrs X, you started accruing CGT.. then''. Can you live in a Quarter, own a home and sell it whilst still living in SFA and avoid CGT from when you rented it out and until you sold it?
There is lots of general guidance and quite a bit of contradictory anecdotal evidence on the web but by way of getting a perspective, does anyone have a military angle on this, ideally, based on personal experience?
Much appreciated.
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We were advised by HMRC that to avoid CGT you have to demonstrate that the house you are selling is your primary residential address. There doesn't seem to be a fixed period over which you have to demonstrate this but the suggestion was 'about a year'. That said, the HMRC advisor I spoke to said that they were pretty pragmatic with regard to service personnel that had been living in MQs and had moved back into their own house and then had to move for civie job. Essentially they assessed on a case by case basis and are just out to ensure that the folks 'don't take the piss'!
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Jack, thanks for that .
The scenario I have in mind is that a service client has been in SFA for the past few years and have only now decided to sell what was previously a private home. There is now no intention to move back into it.
I understand what I might get here isn't concrete; I was just trying to get a steer.
Cheers.
. The scenario I have in mind is that a service client has been in SFA for the past few years and have only now decided to sell what was previously a private home. There is now no intention to move back into it.
I understand what I might get here isn't concrete; I was just trying to get a steer.
Cheers.
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Don't forget the private landlords letting relief which makes a big dent in the CGT if there ends up being any to pay.
It's all in the book 'How to avoid property tax' by Karl Bayley, available at taxcafe.com and elsewhere. Just make sure it's the latest version you buy.
It's all in the book 'How to avoid property tax' by Karl Bayley, available at taxcafe.com and elsewhere. Just make sure it's the latest version you buy.
Jumping Jack - to legitimately avoid CGT, register the property that you are letting (and the one that you might sell first) as your 'Principal Private Residence' therefore there shouldn't be any CGT to pay of you sell it. You can then flip the PPR to the next property - jsut like MPs do/did. Keep the letter in a safe - it might be worth 10,000s GBP - HMRC came after us - and had lost the original PPR approval. I served a notarised copy on them (and as mentioned above, got a buttock-clenching appology form them).
Cleared to roll:
Losses cannot be offset against your other (salaried) income. Up until 1 Apr 11, you could do this for Holiday Lets, but EU ruled that this was illegal. HMG did fight this one - but lost. Losses can be rolled forward to offset gains in future years.
Cleared to roll:
Losses cannot be offset against your other (salaried) income. Up until 1 Apr 11, you could do this for Holiday Lets, but EU ruled that this was illegal. HMG did fight this one - but lost. Losses can be rolled forward to offset gains in future years.
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Register the property with whom? HMRC? The feed I was given was that one need to demonstrate the house as a primary residence through such evidence as utility bils, voter registration etc.....
You should write to your tax office and sya something like:
I am advising you that our property at 123 Cosy Close, Little Snoring, Loamshire is our principal private residence however because of my service in HM Forces we are living in Service accommodation at RAF Lincolnshire/Ramstein/Wherever. The property is currently let.
This means that if you sell the property without having lived in it (although it was your intention to do so) you can demonstrate to the Revenue that it was your private residence. HMRC will write back to you confirming that it is your PPR. Let's say that your have two rental properties - declare the one that you intend to sell (or the more valuable of the two) the PPR. When that's sold, write to HMRC and advise them which is your new PPR.
Gentleman Aviator
Best advice - particularly if out of country - get an accountant. We let Teetering Towers (in Milady Teeter's name) whilst overseas (well - NI 
) and the £200 - odd we spent on her (the accountant) paid back in spades.
IIRC even one flight back per year was deductible.
) and the £200 - odd we spent on her (the accountant) paid back in spades.IIRC even one flight back per year was deductible.
I am advising you that our property at 123 Cosy Close, Little Snoring, Loamshire is our principal private residence
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Party Animal,
I was in the same situation as you for the last 3 years. I have kept my own records and filled in the self-assessment forms myself with ease. I haven't had an accountant and I'm not convinced they would help much. You basically add up the income, take away the allowable expenditure (mostly correctly identified above), then split the "profit" between you and your wife. If your wife has no other income, she'll be well below her threshold - HMRC told my wife to not even bother submitting a tax return. You'll then pay tax at 40% on your bit.
There are leaflets online describing what is/ is not allowable expenditure. I thought it would be a good idea to pay my wife to do the books/ repairs/ manage property etc to use her full tax allowance- but you can't do that if she is a joint-landlord. You can claim expenses to make visits to the property but HMRC are wise to landlords making multiple visits to overseas rental properties to make 'repairs'!
As a guide, we have a property letting for a similar amount with a similar mortgage (albeit the interest component is only roughly 250) and with only a few small repairs per year, I end up paying around a grand in tax per year.
That said, many of my friends pay no tax and some own multiple properties, so perhaps I do need an accountant!
I was in the same situation as you for the last 3 years. I have kept my own records and filled in the self-assessment forms myself with ease. I haven't had an accountant and I'm not convinced they would help much. You basically add up the income, take away the allowable expenditure (mostly correctly identified above), then split the "profit" between you and your wife. If your wife has no other income, she'll be well below her threshold - HMRC told my wife to not even bother submitting a tax return. You'll then pay tax at 40% on your bit.
There are leaflets online describing what is/ is not allowable expenditure. I thought it would be a good idea to pay my wife to do the books/ repairs/ manage property etc to use her full tax allowance- but you can't do that if she is a joint-landlord. You can claim expenses to make visits to the property but HMRC are wise to landlords making multiple visits to overseas rental properties to make 'repairs'!
As a guide, we have a property letting for a similar amount with a similar mortgage (albeit the interest component is only roughly 250) and with only a few small repairs per year, I end up paying around a grand in tax per year.
That said, many of my friends pay no tax and some own multiple properties, so perhaps I do need an accountant!
