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Treatment of Rental Income/allowances from Property

I have just received my first property rental client who has two properties which are let to students (not furnished holiday lettings). I need clarification on the following:

1. Personal Allowance cannot be used as this is unearned investment income.(no other income). Wife has earned income.

2. Client is paying a Retirement Annuity Premium, assuming gross payment before tax. Client has no earned income.
Am I correct in assuming he cannot use this to reduce his taxable profit, but that relief will still be given at the basic rate on the self assessment return. Therefore if he incurs a loss (this is carried forward), but he can claim a refund from the RAP.

3. From what I have read, Inland Revenue treat the profit/loss as shared equally betwwen husband and wife even if properties are only in husbands name, unless they are told otherwise.

4. Finally, when the properties are sold, for capital gains purposes can both the husband and wife use their combined exemptions currently £8200 each, or is only one allowed. As stated above Inland Revenue assume joint ownership. Previous accountant only allowed one exemption.

Thanks to all for any helpful advise.

Tony Lawrence


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By squay
12th Nov 2004 17:35

Property Letting
(1) No. Personal allowances are available to set against all your taxable income.

(2) Yes. RA contributions cannot be set against income from letting as this does not count as net relevant income. RA contributions are paid gross so your client cannot obtain tax relief until he pays tax. He my be able to get relief in the following year. On the other hand personal pension contributions are paid net tax whether or not any tax is actually paid.

(3) The income from letting is taxed in the same ratio as the owner's shares in the property. If the husband owns the property alone then he will be taxed on the income alone.

(4) As for (3). CGT on disposal will be apportioned between the owners in the same ratio as the share of ownership. The previous accountant was correct to only allow one CGT exemption if the husband owned the property alone.

To share profit and CGT allowances consider putting the properties in joint names but both parties will be taxed on profits in the meantime.

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14th Nov 2004 14:11

Thanks Stephen
This being the case, I see from the last rental accounts that previous accountant has allocated a wife's share of profit/loss against the two properties, so now I am confused. She has earned income and investment income of her own. If I understand correctly as the properties are not owned jointly you cannot offset profits or losses in this manner, nor can you transfer losses from the wife's investment income and offset this against husband's unearned income. Do you agree, or am I missing something? I am assuming they have not made an election on Form 17.

I have not yet written to previous accountant for tax computations, explanations etc.

Tony Lawrence.

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