A number of people acquire a second property for the purpose of investment and letting on a Shorthold Assured Tenancy and there are several issues and potential issues of which they need to be aware. For example, when an investment property is acquired jointly in order to improve its value by renovation prior to letting, the expense cannot simply be allocated in the most tax efficient manner – which usually means to the partner paying the higher level of tax – but should be divided equally.
Couples who move in together and free up a second property often choose to rent out their second property. In this case even if the rented property only just covers the mortgage payments, a rental profit may still be made and therefore when calculating such profit, only the interest element of the mortgage payment is an allowable expense at the present time. However even this is due to cease within a couple of years.
Whilst a difficult area to discuss, it is important that divorce issues are also considered. When a couple divorce, they may each move into smaller accommodation and elect to rent out the former matrimonial home. Again, the rental profit is taxable and is normally split between both parties, based upon their respective shares in the former matrimonial home. A Declaration needs to be made regarding how the profit is shared.
Parents may buy a property for a child at university. If the child lives in the property rent free, there is no liability to tax. However, should a rent-paying friend move in with them the situation quickly changes, even if the arrangement with the flatmate is informal. Should this be the case, you are advised to get in touch with your accountant.