Income Tax on Co-Owned BTL?

Swiss_Toni

My wife and co-own 2 residential propertie we rent out to (fairly) long-term tennants.

In the past we have declared the full income for tax liability and split it 50/50, despite it being her who does all of the work associated with the property in terms of rent, repairs, admin etc.

I am paying tax as I am in full time employment but my wife is currently earning a minimal amount (not enough to qualify for paying Income Tax!).

Given that she is doing all of the work, to what extent is it reasonable for her to take a greater than 50% share in the "profit"?

She is self-employed as a registered child minder - does it make sense for her to be paid a small wage for the work she does in relation to the rental property and then after that, split the profit 50/50? (and if so, how do I work out what is a reasonable wage?!)

Thank you....!

fengirl_2

With income from property, the amount of work you put into managing the property cannot be used to allocate the profit. The income has to be shared in proportion to the ownership. If she pays herself a wage for managing the properties, it will not be deductable in arriving at the profit as its her own money in the first place! Inceme from property cannot be earned income - all landlords have to put time and effort into mantaining their properties.

Swiss_Toni

Ho hum!

So it makes no difference that she does all the work and I am the "sleeping" partner?

MarkyMarkD

No.

But you could have bought it solely in her name, in which case all the income would be hers, even if you gave her the money.

Or you could have bought it jointly, but declared up-front that the ownership was not 50:50. It doesn't HAVE to be 50:50 but that is the assumption if you don't document anything different.

James_Trimby

You will need to go through a soliciotor or the like but for the future you might be best owning the properties with differing %'s The cost will depend on the exact way owned at present but should not be great. Wife could then own say 90% (gifts between spouses generally tax exempt) then for future you could split on this basis (OR go back to 50:50). Only worth it if tax saving is good and situation likely to remain for next few years. Keep some ownership in your name as well to help with Capital gains tax when you sell (try and utilise 2 CGT personal allowances rather than one).

IF this was the first time you were declaring the income you might have been able to use a simple bare trust to get the % you want but think it is best to get property ownership details altered as you are altering the system you have already declared. If revenue come back at you it is easy to show the transfer documents.

pid2004

Is there something about owning the property 50:50 but you can have different beneficial interest in the property so you can direct the income to the person who has "more" interest in the property?
(I might be completely wrong...)

Swiss_Toni

pid2004 wrote: »

Is there something about owning the property 50:50 but you can have different beneficial interest in the property so you can direct the income to the person who has "more" interest in the property?
(I might be completely wrong...)

That's what I wanted to achieve (and which is morally appropriate, she does the work after all!).

I'll get some legal advice following James' suggestion above - I pay too much tax and she pays none (due to low income), and that is likely to be the case for a few years yet - so it will probably make sense to spend on a Solicitor and save on the Tax bill.

Must also remember not to get divorced. :A

James_Trimby

Hi pid2004 The rules for joint ownership with the Inland Revenue are that what ever % you own a asset jointly you can declare the income using that percentage OR 50;50. So to get other than a 50:50 split you need to actually own the property in differning %'s. Ownership could move by way of a bare trust but for larger assets especially already declared at a percentage I would suggest changing the paperwork of ownership as well to be safe.