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Am I a landlord or not?

My wife and I jointly own my mother-in-law's flat which we inherited in 2005. In her will, the asset was to be shared also with my wife’s brother and sister. By remortgaging (interest only) my present house I raised the funds to buy out the brother and sister. My wife and I now jointly own the flat with no mortgage and I have a mortgage on our home which is solely in my name. Since gaining ownership of the flat we have only ever let it, first to our son for several years and then to our daughter who is claiming housing benefit. We have never charged a commercial rent as the intention was to help them out.  I have never declared this second property to HMRC. My mortgage comes to an end next year. What are my risks and liabilities and your advice for mitigating them please?

Arthur Weller replies:
If you have received rental income from a property that you own, whether at a commercial rate or below it, then you are obligated to inform HMRC. The exception to this rule is in a situation when both of the following conditions apply: a) You are not liable to tax on the rental income, either because the amount is covered by your income tax personal allowance (you don't have other income using up your personal allowance); or because your allowable expenses on the property equal or exceed the rent. b) Your gross rental income (before deducting allowable expenses) is less than £10,000 per annum, and your net rental income is less than £2,500 per annum. See: If you look back over your records from the past years and you find that you owe tax to HMRC, then the best thing is for you to approach them first, before they approach you.

Property Tax Insider This sample question and answer is taken from Property Tax Insider, a monthly UK tax saving magazine for landlords and property investors.

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