From: Ronald Raygun 
Subject: Re: BTL Related Tax Question
Newsgroups: uk.finance
Date: Fri, 09 Feb 2007 09:45:20 GMT

Donny wrote:

> Okay, so it seems that as a pair they are making a loss, therefore no tax.
> If there were a profit, how do the couple's allowances combine to affect
> the rate of tax?

You've said he is a HRTP so obviously has no allowance left.  You
haven't said what her other income is.  If she has none, then she
could have up to about £5k profit from the rental business before
any income tax becomes due.  Accordingly it would be sensible to
consider the rental business 100% owned by her, so that no extra
tax is paid by him in respect of any rental profits.

> Also, would the couple be able to "write-off" maintenance expenses against
> tax? And if so, at what rate?

Expenses are never set against tax directly, they are set against income.
The effect is to reduce the profit on which tax is paid.  For example:
Annual rent income might be £8k, mortgage interest £6k, insurance £500,
maintenance £500, hence profit £1000.  If she had other income in
excess of the 10% band, she would pay income tax at 22% of this £1000
profit.  A rental business does not count as self employment, by the way,
so there is no National Insurance to pay no matter what the profit is.

> Finally (and thanks for the help BTW), should these two both be doing
> self-assessment?

He need not if taking no active part in the business nor making a
profit on loan interest.

She need not unless the rental profit changes her tax position, so if she
has no other income, and her profit is less than the personal allowance
of approx £5k, there would be no tax to pay so no need to complete a
tax return.

But it might be useful to do so all the same [calm down, dear, it's not
"taxing"], if there is a prospect of her loss turning into profit at
some stage.  The point being that if her loss now is properly documented,
it makes it easier to carry forward to be set against future profit.