Tax on rental income question

dbs

My wife and I are buying a new house and may have to rent our present house out if we cannot sell it.

The house is in both names,my wife is a non tax payer so can all the rental income be paid into my wife current account free of income tax or would half the income be liable for income tax and would have to paid into my current account?

We have spoken to two IFAs one says it will be tax free if paid to my wife the other says no because the house is in joint names half the income is liable for tax.....who is correct?

00ec25

what does and IFA know about tax or for that matter know how to look it up!

the answer is it has nothing to do with wehre the cash goes, it could all go to her but you would still be laible for tax on half of it as half is your income if jointly owned ... for legally married couples rental income must be split in accordance with ownership (for unmarried owners the situation is different)

see point 3, para 2 , page 9 HMRC property rental toolkit
http://www.hmrc.gov.uk/agents/toolkits/property-rental.pdf

C.Lightowler

You would definitely both be liable for income tax if you jointly own it. don't forget though you can claim expenses on the rental income such as repairs, maintenance, 10% wear and tear... etc

xylophone

http://www.hmrc.gov.uk/manuals/pimmanual/pim1030.htm

holly_hobby

00ec25 wrote: »

what does and IFA know about tax or for that matter know how to look it up!

the answer is it has nothing to do with wehre the cash goes, it could all go to her but you would still be laible for tax on half of it as half is your income if jointly owned ... for legally married couples rental income must be split in accordance with ownership (for unmarried owners the situation is different)

see point 3, para 2 , page 9 HMRC property rental toolkit
http://www.hmrc.gov.uk/agents/toolkits/property-rental.pdf

The above is a little misleading .....

Firstly IFAs, should be well vesed in basic tax, and under RDR have to be diploma qualified which incudes a stand alone tax paper. This is because the FA role demands tax knoweldge, as this underpins investment and other provision advice and recommendations they may make.

As a married couple or in a civil partnership, you DO NOT have to have the income for rental property split 50/50 for HMRC purposes - you can make elections otherwise.

Traditionally married couples hold property as joint tenants (ie both jointly hold the property in equal shares, with automatic inheritance on 1st death).

However you may also hold the property as "tenants in common" (whereby an unequal ownership or split ownership may be set, and is unaffected by the indviduals death), and thereby elect by the completion of HMRC form 17 to have the beneficial ownership noted, and therefore share of related income apportioned, as per the share holding denoted under the TIC arrangement.

OP - currently if the property is held as joint tenants - then the rental income will indeed be deemed as being split equally aka 50/50 with your wife. However, as a non-tax payer she will not be liable on tax on her share of the rental inc, until her total income from all sources exceeds her PA.

You will be liable to pay tax on your share at your determined tax rate.

So to mitigate tax, you may wish to have the majority of rental income paid to your wife, to achieve this you would need to have the deeds changed to tenants in common (as discussed above, and which is also beneficial re bequests, as each party can individually leave their share to a nominated indvidual on death rather than it automatically tsf to the joint owner as under a "joint tenant" arrangement), with you having a nominal share say 1% and your wife having 99% - or however you want to play it.

You then complete form 17 here it is (http://www.hmrc.gov.uk/forms/form17.pdf), within which you will declare to HMRC the beneficial ownership split between yourself and your wife.

With the end result that you wife will recieve the bulk of the rental income, which will be favourable to her current tax position.

A word of warning, once election has taken place, it can not be amended - so think carefully how you wish to split.

As with any open forum, you can see differing advice, so it is always wise to top and tail this with indpendent professional advice. (HMRC will be pleased to assist with any enqs you have), a conveyencer will assist in amending the tenancy status of the property if reqd.

Hope this helps

Holly

anselld

holly_hobby wrote: »

A word of warning, once election has taken place, it can not be amended - so think carefully how you wish to split.

The election ( to tax in line with actual ownership percentages) cannot change, but the ownership percentages can be changed by gifting between spouses, eg if they wanted to revert back to 50:50 in the future.

holly_hobby

I was actually referring to HMRC election which I thought was apparent - apols if thats not have it read to others.

Yes of course TIC ownership may be amended at any time to any % - by the trsf of equity between owners/amendment to the deeds.

Hope that clears the point up for all.

Hope this helps

Holly

Helpme999

holly_hobby wrote: »

The above is a little misleading .....

.

As a married couple or in a civil partnership, you DO NOT have to have the income for rental property split 50/50 for HMRC purposes - you can make elec
Traditionally married couples hold property as joint tenants (ie both jointly hold the property in equal shares, with automatic inheritance on 1st death).

However you may also hold the property as "tenants in common" (whereby an unequal ownership or split ownership may be set, and is unaffected by the indviduals death), and thereby elect by the completion of HMRC form 17 to have the beneficial ownership
noted, and therefore share of related income apportioned, as per the share holding denoted under the TIC arrangement.

OP - currently if the property is held as joint tenants - then the rental income will indeed be deemed as being split equally aka 50/50 with your wife. However, as a non-tax payer she will not be liable on tax on her share of the rental inc, until her total income from all sources exceeds her PA.

You will be liable to pay tax on your share at your determined tax rate.

So to mitigate tax, you may wish to have the majority of rental income paid to your wife, to achieve this you would need to have the deeds changed to tenants in common (as discussed above, and which is also beneficial re bequests, as each party can individually leave their share to a nominated indvidual on death rather than it automatically tsf to the joint owner as under a "joint tenant" arrangement), with you having a nominal share say 1% and your wife having 99% - or however you want to play it.

You then complete form 17 here it is (http://www.hmrc.gov.uk/forms/form17.pdf), within which you will declare to HMRC the beneficial ownership split between yourself and your wife.




Is that right? Can you only do form 17 if you are tenants in common?

holly_hobby

Yes - because the differential split for tax under Form 17 election , has to mirror the deeds- as Form 17 confirms.

An unequal share/split of equity in a property between owners, can only be achieved by a tenants in common arrangement.

Form 17 is only relevant for married couples/civil partnership - and is not necessary for unmarried couples etc, who may simply split the rental income for HMRC purposes by declaration, irrespective of how the property ownership is apportioned under either under a joint tenancy (automatic equal shares) or tenants in common (elected share) basis.

Hope this helps

Holly

A_little_lost

Is there an equivalent of a form 17 for unmarried couples wishing to be tenants in common with an unequal split?

If not, how does one go about becoming tenants in common?

holly_hobby

No, this isn't required between unmarried couples.

If in relation to splitting rental income for tax purposes - you can simply make the election to HMRC, the split does not have to reflect the tenancy shares the property is held in i.e 50/50 for joint tenants, or whatever elected share under a tenants in common arrangement.

If you are in general, looking at changing your property ownership from joint tenants (with automatic equal shares) to tenants in common (where diffirential shares may be held by the differing parties) - this will be administered by a licenced conveyencer or conveyencing solicitor - and there will obviously be a professonal fee incurred.

Your local yellow pages will have guides to practioners in your area.

Hope this helps

Holly