Do you have a shared ownership and not sure about your rights and responsibilities? Do you have lots of questions that you can’t quite find the answers to? Don’t worry, that’s where we are here to help.
What is a shared ownership?
A shared ownership is an alternative way of getting on the property ladder. If you cannot quite afford the mortgage 100% on a home, shared ownership can help. It gives eligible purchasers the opportunity to buy a share in a new build or resale home.
Buyers can purchase a stake at usually between 25% and 75% in a property, while paying rent on the remaining share to a housing association or private developer that own the building. The rent paid on the remaining share is charged at discount (usually 2.75% of the property value per year).
As the purchaser only needs a mortgage for the part they own and not the entire property, the amount of money required for a deposit on the home is much lower compared to when purchasing outright. It is also known as part buy/part rent.
Shared ownership allows purchasers to become owner-occupiers. This gives long term security and stability of a home ownership at an affordable price. You can start by buying as little as 25% share in a property meaning your deposit can be as low as 5% of the price of that share. Stamp duty can also generally be deferred until your property increase share is at 80%.
Shared ownership eligibility
Shared ownership is a great way of getting on the property ladder and a useful stepping stone for those who want to buy their own home. There is certain criteria you must meet in order to qualify for shared ownership.
- Your maximum household income must not exceed £90,000 per year in London or, £80,000 in the rest of England
- You must be at least 18 years old
- You must not be able to purchase a suitable home to meet your housing needs on the open market
- You should have a deposit that equals the amount required for the share that you are purchasing (not the entire property, just your share)
- You do not already own a home or, have sold your current home before purchasing through a shared ownership
- You must prove that you are not in mortgage or rent arrears
- You must be able to show that you have good credit history (e.g no county court judgement’s and can afford regular payments that are involved in buying a home)
Letting out your property and shared rental income
When you have purchased your property, either 100% or, share it with say a partner, you can then also decide to let someone live in the house and pay you rent. To do this, you must have purchased the house in it’s entirety whether on your own or, shared with a partner.
If you begin renting out your home, you need to declare your share of the rental income. For example, if the total income was £10,000 and you own the home yourself, you would need to declare your tax return on the full amount. If you shared the home 50/50 with someone, you would both need to declare £5,000 each on your tax return.
Starter check list for new landlords
Becoming a new landlord can be quite daunting however, it can be very rewarding. We have pulled together a quick check list if you are just starting to rent out your property.
– Arrange an EPC
– Complete a ‘right to rent’ check
– Get a reference for your tenant
– Ensure the rental property is safe. Make sure smoke alarms are fit on each floor and you have an up to date gas safety certificate
– Arrange a tenancy agreement
– Ensure the property is clean
– Get landlord insurance
Paying Income Tax on a rental property
You need to contact HMRC if the income from renting your property is between £1,000 and £2,500 a year. You must also complete a self assessment tax return if your income is between £2,500 and £9,999 after allowable expenses or, £10,000 or more before allowable expenses.
Since April 2017, if your combined income from UK, overseas and commercial property is under £1,000 before expenses, you do not need to pay income tax, register with the HMRC or file any tax returns. It is still worth noting that there are exclusions in this legislation that could affect your eligibility so, it is always worth double checking.
Any profit that you make from renting a property is part of your income and is therefore subject to income tax. The amount you pay is subject to your total taxable income so, if you bay the basic rate of tax, you will pay 20%. While, if you are a higher rate taxpayer, you will pay 40%. Furthermore, if you are in the additional rate bracket, you’ll pay 45%.
What are allowable expenses?
Allowable expenses are when you spent money that concerns the property you are renting. This comes off of your profit so it’s important to record what you spend and where. Some examples are:
- The cost of finding a tenant e.g advertising
- Cost of insurance
- Cost of repairs and renewals which are needed to maintain the property
- Council tax and water charges
- Letting agent fees if you have used one
If you are considering renting out your property that you share with someone and would like some help and advice when it comes to your tax return, please don’t hesitate to get in touch with the Cooper Accounting team, we would be more than happy to assist.