Tax on Rental Income

Hi,

We have a jointly owned property - currently rented.

Can my partner take all the rental income and pay all expenses so she is the only one taxed on this income?

Or is it split down the middle and we both take 50% of the eincome and claim

50% of the expenses.

The former situation is better as then I will not be pushed up to a higher earning taxation level

Cheers

Fred

If married you can give your half to your wife with no tax implication then all the income is hers.

I have never been able to find out conclusively if you have to go through land registry etc or if you can just give it to her, say with a little note saying 'it's all yours love so you pay the tax, expenses and do all the work from now onwards.'

Mark BR

except for Stamp Duty Land Tax possibly

Not so. He might as well argue to the taxman that he could transfer salary from his paid employment to his wife, in order to split the tax liability on that. We are talking about transferring income here, not capital assets.

As the previous poster said, rental income is split according to the proportions by which you own the property. The good news is that this can be easily changed (though you have to do it in advance of earning the rental income (ie, you can't change the proportions on 4 April and expect to transfer all the income for the whole tax year over to her.

I'm guessing you own your property as "Joint tenants"? (which will be

50:50). You need to change the ownership to "Tenants in Common" which has to be registered with the Land Registry, and has other legal ramifications but basically means you can stipulate the relative ownership; so providing you trust your wife!, you want to make it 99% hers, 1% yours (1% is the minimum AIUI). Having done that step, it's easy enough (and legal) to change it back to 50:50 just before you sell the property, to make optimum use of both of your CGT allowances.

Went through all this myself quite recently.

David

That's not the same thing.

But we are talking about capital assets. Once he transfers it to his wife or partner, the income then becomes hers.

You can transfer it retrospectively. Well, you can't really, but as no official recording of the act need be made in advance, you can notify the taxman after the fact. E.g. you can notify the taxman in the notes to your tax return due by 31th Jan 07 that you changed the proportions on or with effect from 6th April 05.

I believe it is not necessary to change the paper ownership proportions. Beneficial interest is what matters and this can be changed by simple declaration to the taxman.

Indeed. The trouble is that as the OP is not married to his partner, all of these transfers would involve CGT implications.

In fact, it might make sense to transfer proportions back and forth between unmarried partners annually, to make best use of annual CGT allowances, in order to mitigate the final CGT bill when the property is sold in due course. This wheeze not available to married co-owners.

Whether married or not, there should be no stamp duty due on these transfers if they are gifts, even if there is a mortgage involved: Normally a transfer by gift, in which the donor transfers responsibility to the donee for the debt, the donee's agreement to take over this responsibility counts as consideration and hence voids the unfettered gift status of the transfer and so SD becomes payable on the value of the debt involved -- but in the case of co-owners who already hold a joint mortgage with joint and several responsibility, then they are already *both* liable for the *whole* debt, and hence changing ownership proportion involves no *transfer* of responsibility for debt.

Take care also that if they are not married there will be inheritence tax implications of transferring ownership (i.e. gifting) of the property. If the giver dies within 7 years the the value of the gift is included in the IHT calculation. Also, if you get married later that does not help. it is whether you were married at the time of the gift that matters for IHT.

In view of this it might be safer to find a solution where the partner borrow's money to buy out the house perhaps using an IOU, so that it is not a gift. IANAL.

Robert

You can't get around IHT liability that easily.

If instead of A giving (a share of) the house to B, B buys it off A for a cash sum, then A's estate will still have that cash sum lying around to be taxed (unless A spends it all first, of course).

If B borrows the money from A first, and then uses it to pay A for the asset, then when A dies, B will still owe the estate the money, and it will therefore still be taxed.

OK, misunderstanding - I took the last poster's response to mean that he could give his half of the rental income to his wife; you reckon he means gifting her his half of the property - if so, then yes I agree with you!

Mm. My accountant got very twitchy when I suggested doing this; OK, he wants to cover himself by advising me to do it by the book, but he reckoned that the above route was likely to 'look' potentially dodgy and therefore by more likely to attract the attention of HMIR and precipitate one of their dreaded spot-checks.

Ah, missed the subtle but vital nuance of the word "partner"...

David

How do you know they are not married?

I don't know it, but the fact that he referred to her as partner and not as wife does rather suggest it.

No, Ronald was right in his guess and I was right not to guess!

Hey don't leave me out... I guessed wrong!

David

Thanks for that and peter is right we are not married (yet)!

cheers

fj

Anyone else want to be considered?

YES you can divide as you see fit if I understand your circumstances correctly.

See:

Hmm, most interesting...To quote from the HMRC website (paraphrased):

"Husbands and wives living together should generally be treated as entitled in equal shares to income from jointly held property...[except where]...both husband and wife have signed a declaration under ICTA88/S282B stating their beneficial interests in both the property and the income arising from it...[AND]...their interests in the income and in the property itself correspond."

As we're about to jointly invest in a BTL flat, and she is a basic rate taxpayer while I'm at higher rate, I take it that we can legally arrange our affairs so as to minimise our overall tax bill by making a declaration along the lines of "Mr F has an interest of x% in the property and Mrs F has an interest of y% in the property", so long as we ensure that x% of the rental income goes to me and y% to her ?

Comment from a tax-knowledgeable person would be very welcome.

Nick

Firstly you are always entitled to organise your affairs so as to minimise your overall tax bill (making the assumsion it is a legal organisation!)

I believe you can than make that statement. We have over a period of about

12 years on a property that was initially 100% mine, it is now 100% my wife's and the income has correspondingly change from one tax form to the other. No complaints yet.

Mark BR