Uneven rental income split

[Paul bimrose]

So the situation is my long term partner (we aren't married) is nearly in the 40% tax bracket and I'm not. We want to split rental income to be more tax efficient. Is the best way to do this to be joint tenants and simply draw up an agreement stating that we are splitting the rental income say 90/10 in my favour?

 

Thanks in advance!

[Paul bimrose]

Thanks everyone! 

[Craig Millar]

Hi PaulB

 

When you say joint tenants, I assume you mean joint landlords.

 

I'm meeting my mortgage broker on Wednesday to sort out a mortgage on my first rental property. We had a quick discussion on the phone and he has already suggested splitting the income as you suggest for the same reason. If I remember correctly, I also read there's a HMRC form you have to fill in to declare this. I'll be discussing it with my accountant too.

[webnik]

We were considering this but the advice we were given was that the proportions of rental income should match the proportions of ownership/interest in the property. I’ve just googled again and for us (married) this seems definitely to be the case, even if you fill in a Form 17. 

 

Bear in mind that if you adjust the ownership proportions in order to allocate income, then we were also advised that CGT and SDLT come into play for the person losing in proportion and the person gaining in proportion respectively. When we looked at it, this made it less attractive than moving the house into a limited company for our circumstances and so that’s the sledgehammer we ended up using to crack the 40% tax nut! Your mileage may of course vary but I’d definitely talk to a trustworthy tax advisor or accountant before you make your decision. 

[Paul bimrose]

19 hours ago, craig millar said:

Hi PaulB

 

When you say joint tenants, I assume you mean joint landlords.

 

I'm meeting my mortgage broker on Wednesday to sort out a mortgage on my first rental property. We had a quick discussion on the phone and he has already suggested splitting the income as you suggest for the same reason. If I remember correctly, I also read there's a HMRC form you have to fill in to declare this. I'll be discussing it with my accountant too.

 

Hi Craig,

 

I mean when purchase the property we will either be joint tenants (even split), or tenants in common (split however we specify). As I understand it if we are joint tenants then as an unmarried couple we can simply draw up an agreement saying how we will split the rental income.

[Jamie McLaughlin]

On 10/22/2017 at 7:26 PM, PaulB said:

 

Hi Craig,

 

I mean when purchase the property we will either be joint tenants (even split), or tenants in common (split however we specify). As I understand it if we are joint tenants then as an unmarried couple we can simply draw up an agreement saying how we will split the rental income.

 

Paul,

 

Interested to know how you got on with this? My brother and I own a property and he's not even earning enough to get into the basic tax rate. If we can amend the profits then there are huge efficiencies to be gained.

[Paul bimrose]

Hi Jamie,

 

I got pointed to this which explains it all pretty well:

http://www.ramsaybrown.co.uk/documents/JointlyOwnedPropertyandTax.pdf

 

So, if you are unmarried, as I assume is the case with you and your brother  all you have to do is write to HMRC and let them know that you are splitting the income in whatever proportion you decide (10/90, 20/80 etc) and that is it done. For married couples it seems a little more tricky.

 

I asked this on another forum as well and was advised that the letter to HMRC should be something like this:

 

Dear Inspector of Taxes ,

We A and B are joint owners of the property at 123 Road Rd . We have agreed commencing from 6 April , 2017 the rental profit from the property shall be shared 90% to A and 10% to B. 

Yours sincerely ,

Signed by both A and B . 

[Jamie McLaughlin]

Excellent!

 

Thanks for this, Paul!

[Raymond Chan]

Hi I spoke to the hmrc the other day about this as I was a bit unsure about what to fill in.  

 

The form you need to fill in is a form 17 which is a declaration of uneven Split of income on a jointly owned property. 

 

The form states that evidence should be suited with the form and the call centre I spoke to directed me to some guidance on the website which outlines what examples of evidence that you can submit. 

 

You need to go onto www.gov.uk first search for tsem9851 in the search bar then on that page there is a link to
Tsem9230 which has examples of the type of evidence required. 

 

In terms of capital gains as I understand you can elect to change the splits that the property is owned when you come to sell. For married couples this should not incur a tax charge, might need checking, however for unmarried joint owners I think there is. 

[Paul bimrose]

Hi Raymond, 

 

A form 17 is only required if you are married and are tenants in common. If you are unmarried there is nothing to fill in, you just need to inform them of how you are splitting it. 

 

Cheers 

 

Paul 

[Paul bimrose]

https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

 

"Use form 17 if you own property with your spouse or civil partner and want to change the split of income to an actual basis for tax purposes." 

[PaddyHorsington]

On 11/8/2017 at 3:20 AM, PaulB said:

Hi Raymond, 

 

A form 17 is only required if you are married and are tenants in common. If you are unmarried there is nothing to fill in, you just need to inform them of how you are splitting it. 

 

Cheers 

 

Paul 

 

Thanks for this Paul. Now the big question is..... I have been transferring my brother the rental income since we bought the property. Then a year ago I asked the tenant to directly pay him (initially it had to be from my account in order to get the lending). My brother has been declaring all the income to HMRC. HOWEVER we had not told HMRC of this, all we both did as added it into the additional information box. Are HMRC going to not like the fact that we didn't write to them from the start?

 

Paddy

[Mark Sloane]

On 11/7/2017 at 8:20 PM, PaulB said:

Hi Raymond, 

 

A form 17 is only required if you are married and are tenants in common. If you are unmarried there is nothing to fill in, you just need to inform them of how you are splitting it. 

 

Cheers 

 

Paul 

 

Hi Paul,

 

Thanks for your input in this thread, I have found it really helpful.

[aGordeno]

It depends on may factors to consider, as well as what did you write in the W-9 on these incomes (like here:  https://w9.pdffiller.com/  ) yet I have a thought that it will be not that difficult

[Mark Sloane]

Hi all,

Just wanted to bump this one up to check that my logic is still correct. We are finally hoping to secure our 2nd property in the next couple of months. My partner and I are not married.

The plan is to buy in our own names and advise the HMRC of an uneven rental split in my partner's favour as I am a higher rate tax payer. The split of income that she receives will not tip her into the higher rate bracket.

The logic is so that we do not have to pay the increased cost (before totally necessary) of acquiring and managing through a ltd company (higher rates, accountancy costs, etc).

Does anyone see any holes in that logic?

Thanks in advance, Mark

[Debbie Franklin]

Wife has to own 100% for 100% of the income to go to wife

[Debbie Franklin]

No but wife could own 1% and be taxed on 50% of the income under the 50:50 default spit for jointly owned property

[DamienDacey]

On 2/14/2020 at 1:56 PM, debbie franklin said:

No but wife could own 1% and be taxed on 50% of the income under the 50:50 default spit for jointly owned property

And to achieve that, but starting from a position where husband owns 100%, husband could gift 1% of the equity to his wife, notify the lender (seeking their permission), the land registry would need to be updated, and HMRC would automatically split any income 50-50. Is that right, @debbie franklin?

[elensmith12]

Thus, for example, if one spouse owns 80% and the other spouse owns 20% of the property any rental profit is still treated as arising to each spouse as to 50/50 for income tax purposes. If each spouse is liable to income tax at the same marginal rate, the 50/50 split is acceptable for tax purposes.

[EvolutionBlogger]

 

 

On 10/25/2019 at 5:38 PM, Mark Sloane said:

Hi all,

Just wanted to bump this one up to check that my logic is still correct. We are finally hoping to secure our 2nd property in the next couple of months. My partner and I are not married.

The plan is to buy in our own names and advise the HMRC of an uneven rental split in my partner's favour as I am a higher rate tax payer. The split of income that she receives will not tip her into the higher rate bracket.

The logic is so that we do not have to pay the increased cost (before totally necessary) of acquiring and managing through a ltd company (higher rates, accountancy costs, etc).

Does anyone see any holes in that logic?

Thanks in advance, Mark

How can you justify allocating your profit to your partner if you own the property equally? HMRC won't take too well to you 'advising them' on how to tax your profits...

There needs to be a legal justification for your partner to get the benefit of those profits and not you

 

[Paul bimrose]

3 minutes ago, Vineet Gupta said:

 

 

How can you justify allocating your profit to your partner if you own the property equally? HMRC won't take too well to you 'advising them' on how to tax your profits...

There needs to be a legal justification for your partner to get the benefit of those profits and not you

 

Yes, I totally agree. I'n my case I do all the renovation on the property to start with, then find the tenants, do all the paperwork etc. Once the property is up and running with tenants in I'm the one that deals with everything, collects rent, sorts out any problems etc. 

[Sam_F3]

52 minutes ago, Vineet Gupta said:

 

 

How can you justify allocating your profit to your partner if you own the property equally? HMRC won't take too well to you 'advising them' on how to tax your profits...

There needs to be a legal justification for your partner to get the benefit of those profits and not you

 

Create a deed of trust and complete a HMRC Form 17? I have never had an accountant tell me there was a problem streaming 99% of the income to my wife even though we are tenants in common...