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When does CMS take percentage of rental income

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Dadneedsaccess

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Hi Guys,

I’ve just moved in with my partner and looking to rent out my home. My ex knows this and has already had CMS do a variation on me which they couldn’t find anything because it’s not rented out yet.

My question is, at what point do they start adding my rental income to the calculations? Do they wait until it I make a tax return and work out the payments from there which could be after April 2026 or do they work it out as soon as I start receiving the income?

The rent I receive with be £1000 a month which if I just added £12000 to my earnings I would be over the 25% threshold for increasing payments immediately, but that figure is not taking into account any expenses that would be deducted like property management fees etc…

Any advice would be massively appreciated from you gents.

Thanks in advance

Michael
 
Transfer the property to a limited company. Be the sole shareholder of the asset but also issue 1 preference share to your girlfriend. Pay all the dividends to the preference share as your contribution of rent and bills where you will be living.
 
Hello,

They would get information on the rental income from you self assessments. This would normally be viewable to them, 30 days prior to your Annual review. (When they request that information from HMRC).

Now as a personal asset (no longer your primary residence). It would be over the prescribed value of £31,250. So the ex could also apply for a variation as unearned income. Where 8% the approximate value could be added to your gross income.

Moving it to an asset of a ltd. Company means it is then an asset of the business. However, the example provided by "Unknown01", could be viewed as diversion of income by the fraud investigation department. Unless you are earning from the ltd company. (Wage/dividend). Where that income is taken into account by the CMS.

I have known people, who have simply chosen to rent a room, in their primary residence.

The CMS have the legislation and the means to account for it, in some way.

"If I was you I'd consider taking solid financial advice, to figure out what works best in your case".

It never pays to make the ex as wise as you. Especially where finances are concerned.
 
I guess one option is to sell the house, put all the money in your pension and then CMS won't count it. You could even put your whole salary in a pension this year and live off some of the sale proceeds instead and pay her nothing next year to teach her a lesson for being greedy. Quite tax efficient too.

Obviously this will partly depend on your age and how soon you can unlock the proceeds from your pension again of course.
 
(to dadneedsaccess) From rental income the CMS assessment of unearned income is based on the profit. Not the total income.

The 25% threshold is based on the weekly gross. (Yearly / 365 days * 7). You would be legally obligated to inform the CMS of a weekly change likely to be permanent. Because if they find it at review:
- face a fine and fees.
- have arrears created by the CMS, using an estimated income figure to do so. Backdated to when they say you started earning in.
- if the provide no prior notice, or provision for information. The burden of proof then falls on you to prove them wrong.
- The ex already put in the variation, so the CMS will be looking for it. They had the ability to request bank account information, a while ago.

(To unknown01) The CMS are filth for sure!
However if you look at CBP-7770.pdf (7.3 page 36. Pension contributions a diversion of income as example). and the other accessable guidance notes used by the CMS and DWP, the legislation and case law. They are more than wise to this course of action.
They will basically charge anyway, on there terms by legislation.

If he wants to rent, yer it's not nice the CMS can take it into account. But I hope he goes in with his eyes open! Knows his rights and what they can and cannot do.

I hope this helps.
 
Landlords get a rough deal with the CMS because they make no allowances for any costs or deductions. They'll see the gross figure and use it in its entirety. As you commented your ex is already wise to this with an attempted Unearned Income claim it has to be assumed she won't give up and keep on going. If anybody suggests putting it in Trust that won't work. If you don't declare any rental income on your SA Tax Return it could risk prosecution for tax evasion or the CMS may ask the FIU to investigate. Not a good position to be in - I'd be tempted to sell up and split the equity into different savings vehicles to avoid a Notional Income claim for any asset over £31,250.
 
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