Rental Income Tax Liability?

D

DOTS1000

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hi there,

I bought a house with my friend a number of years ago during the glory days, we are both named on the mortgage and have been paying 50/50 each month.

I have not been living there for a while but am still paying my half of the mortgage. Selling is not an option nor is my friend buying me out so I was looking at renting my old room out but my friend has offered to cover the monthly mortgage payment instead (he then gets the run of the house), I will still have my name on the mortgage.

QUESTION: Will I have an effective rental income tax liability on my half of the mortgage payment because my friend (co-owner) will be paying the entire mortgage now ?

I was going to email revenue but thought I'd check here first in case anyone else has found themselves in this situation.

thanks
Dave
 
Hi Dave, no, I don't believe you will have any rental income tax liability, because you'll have no rental income. You & your friend buying the house and paying the mortgage 50/50 or he paying it all, is of no consequence to revenue, much the same as if you were a couple both living there , it wouldn't matter whose account the mortgage payment came from.

What IS important though, is does your friend understand your name would still be on the deeds, you would still own half the house even though he's paying the full mortgage, does he think he's taking it over solely without paying you anything for the portion already paid for.....might be best you check this with a solicitor in case your non-contribution to the mortgage could affect your right to claim half ownership of the property in future.
 
thanks for the response Hippy1975, that is what I was thinking and is broadly in line with what an accountant told me late yesterday (although personal taxes are not his specialty and he did say that) he also said that since the other named mortgagee is just paying the mortgage that I am not technically in receipt of any rental income and therefore that he doesn't believe there would be a tax liability. Having looked through some of the other threads on here though I can see some rental income horror stories and I just don't want to find myself in trouble with the revenue down the line (I have enough stress as it is) but obviously don't want to be paying large chunks of the money away in tax either if I don't have to so I wanted to be fairly sure.

My friend does know that my name is still on the mortgage, it works for him as he and his girlfriend can move in together and have the place to themselves. It is interesting what you say about the ownership though, I had not really thought about that, we don't have a written agreement, it didn't seem necessary back in the day being all young and fancy free but perhaps it might be something worth looking into further (this is like peeling an onion, so many layers, accursed property crash!).

If anyone on here has any other insight I'd sure appreciate it.

thanks again
Dave
 
If I was you I would declare the half of the mortgage, he pays, on your behalf as rental income as this way it protects your ownership by showing he agreed to pay you the rent so he could have full use of the house. And you need to get that in writing in case any issue arises in the future over who owns it, if you were to fall out and he can show he paid all the mortgage, maybe he would get the house! Get legal advice rather than accounting advice!
 
thanks Left123, I'm not sure I'd want to declare a tax liability if none actually exists just to protect the ownership side, although the ownership angle is an interesting one (if unlikely) it is the tax side I am interested in here.
 
The tax issue here is complicated and you might well be wise to get proper advice on it from a specialist tax consultant.
 
indeed! I have asked two tax accountants, neither believe that there is a rental income tax liability but both agree that it is not straight forward. I wonder would an email to revenue be the safest way to proceed.
 
Revenue are tax collectors, and are not in the advice business. In general, their staff try to be helpful, and are, but they also routinely disclaim "advice" that they later find to be erroneous. Caveat emptor.
 
If the co owner is paying your share of the mortgage, you are in receipt of income. What is the reason for the income.

It's because you are allowing them to occupy property owned by you. This in my view is rental income.

If on the other hand you have agreed that they will make the repayments but that at the end there will be a different amount owed by the two of you then you are not in receipt of any income and therefore no liability will arise.
 
I would be of the view that the mortgage payments made by the friend would be money gifted, and that gift tax should apply.

This is assuming that he retains 50% of the ownership.
 
Joe_90 said:
If the co owner is paying your share of the mortgage, you are in receipt of income. What is the reason for the income.

It's because you are allowing them to occupy property owned by you. This in my view is rental income.

If on the other hand you have agreed that they will make the repayments but that at the end there will be a different amount owed by the two of you then you are not in receipt of any income and therefore no liability will arise.
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I understand your point but the property is his property also and we are jointly and severally liable for the mortgage since we are both named and registered on the property and since the house is not split in two he has always occupied the property, nothing has changed on that front. No ?
 
callybags said:
I would be of the view that the mortgage payments made by the friend would be money gifted, and that gift tax should apply.

This is assuming that he retains 50% of the ownership.
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this is something that I had considered but the aggregate payment for 12 months would be below the threshold (btw does the 3K tax free annual limited come off the threshold or is the threshold of 15K inclusive of the annual 3K).

Also would the interest portion of the payment be included or just the capital portion ?
 
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