Rental Property - How to separate it from my husbands income for tax purposes?

Dolly_Mixture

This is driving me bonkers! Where my husband and I live there was a small barn which we bought with our house and is on the same deed as our house. We have done it up and converted it into a small 2 bedroomed house. We have started to rent it out and want to be honest and declare income tax. My husband is a higher rate tax payer, so for the purposes of tax, we want the barn rental to be my business and pay only the lower rate of tax. (I already work part-time in a school) I went to see a tax accountant who suggested we draw up a Declaration of Trust and put the property 99% in my name and 1% in my husbands name. He advised that we should see a solicitor to do this. I spoke to one solicitor who seemed to think that this would be ok and they would charge us £300 plus vat to do this. I have been to see another solicitor today, who said a declaration of trust would cost us £150 plus VAT - however at the meeting she decided it might cost us more (even though she had all the info from the phone call) and advised that the Inland Revenue might just think we were doing this as a scam to avoid income tax (as if!) and perhaps we should put the property completely in my name or do a 25% 75% split and suggested we see a tax accountant. Either way they were going to charge me £50 plus vat for the pleasure of the meeting.

If anyone has drawn up a declaration of trust or had a similar issue with tax, I would be grateful for any suggestions. I have opened a separate account in my name only where the rent is paid into and am keeping a file of the income and outgoings of the barn.

Thank you in advance!

Chocforever

I'm not sure what a tax accountant will add unless the income will be enough to move you into a higher rate of tax (and presumably this is not the case) or you are concerned about longer term planning for inheritance tax etc.

The income arises from an asset and whoever has beneficial ownership of the asset owns the income. Moving money around bank accounts won't help.

Your fee quotes sound very low - I would go to a decent law firm and get them to sort it out properly from day 1.

CF

SeniorSam

Dolly_Mixture wrote: »

This is driving me bonkers! Where my husband and I live there was a small barn which we bought with our house and is on the same deed as our house. We have done it up and converted it into a small 2 bedroomed house. We have started to rent it out and want to be honest and declare income tax. My husband is a higher rate tax payer, so for the purposes of tax, we want the barn rental to be my business and pay only the lower rate of tax. (I already work part-time in a school) I went to see a tax accountant who suggested we draw up a Declaration of Trust and put the property 99% in my name and 1% in my husbands name. He advised that we should see a solicitor to do this. I spoke to one solicitor who seemed to think that this would be ok and they would charge us £300 plus vat to do this. I have been to see another solicitor today, who said a declaration of trust would cost us £150 plus VAT - however at the meeting she decided it might cost us more (even though she had all the info from the phone call) and advised that the Inland Revenue might just think we were doing this as a scam to avoid income tax (as if!) and perhaps we should put the property completely in my name or do a 25% 75% split and suggested we see a tax accountant. Either way they were going to charge me £50 plus vat for the pleasure of the meeting.

If anyone has drawn up a declaration of trust or had a similar issue with tax, I would be grateful for any suggestions. I have opened a separate account in my name only where the rent is paid into and am keeping a file of the income and outgoings of the barn.

Thank you in advance!

......... Is your property owned as joint tenats or tenants in common ( usually half each) ?

If the latter then the income is split, but bear in mind that costs can be taken off the profit.

Easy to change ownership from joint tenancy to tenants in common at the land registry.

I trust that you have obtained planning permission for the barn conversion, but have you cleared it with the planning office that you can let it out??

Sam

Dolly_Mixture

Thank you for replying to my post. We currently own the property as joint tennants but will change to tennants in common for the declaration of trust and so that the property will be 99% in my name for income tax purposes. The property has passed all planning etc.

The solicitors I saw today said that they could do the declaration of trust and change the deed to tennants in common but that the Inland Revenue may not accept this and may think that we are just trying to avoid tax and then we might need another declaration of trust doing that they would accept.

I just wondered if anyone had any experience of this - I do not want to fork out £300 plus vat to put the property 99% in my name only for the Inland Revenue to reject it and charge us 50% of the income on the property at the higher tax rate.

The reason I have put the rental income into a bank account in my name is to show that it is my business and not my husbands.

Hope this is all clear and thanks for the replies so far.

Pumpkinface_2

Tax avoidance is not the same as tax evasion. What you are proposing is avoidance and is perfectly legal. If you page down to the bottom section of the below document it covers husband and wife scanarios and you will see if the split of income reflects the split of ownership then it is allowed.

http://www.hmrc.gov.uk/manuals/PIMMANUAL/PIM1030.htm

Seanymph

One option is for you to set up a company and for your company to 'manage' the property on behalf of you and your husband.

Say 'sheila's property management ltd'. You open it, you own it, your husband can be a non shareholding director and it can be run from your house.

You and your husband delegate the letting of your property to SPMLtd - SPMLtd pays you for your secretarial/management services as an employee, all monies from the tenants are paid to SPMLtd and SPMLtd meets all associated costs directly. You can draw up to your tax allowance (or above if you want to pay tax) as an employee.

Any profits can be left in - but I'm sure you can run it so that there are no profits - it could, for instance, pay your mobile phone bill, or mileage at 40p a mile for work associated with it.

You can work out the finer points - but basically your company manages the property, and miminal rental is passed on to you and your husband as owners of the property.

Dolly_Mixture

Thanks for all the replies so far guys (and gals). When you are a complete novice in this area, it is difficult to know where to start and who is telling you the correct information. I think I need to discuss all the replies on here with my husband and take it forward from there. The information on the HMRC website is very useful and I thank both the posters who mentioned it for that.

Thanks


Dolly