How to split rental profit, if I have a smaller part of mortgage

snickpan

Guest101, my question is how do we split it, your answer is 'you have to agree how to split and stop trying to avoid tax.'
You are no help what so ever.

I think Silvercar has it

Guest101

snickpan wrote: »

Guest101, my question is how do we split it, your answer is 'you have to agree how to split and stop trying to avoid tax.'
You are no help what so ever.

I think Silvercar has it

I didn't say 'stop trying to avoid tax', I said that you both agree how to split it and then pay the correct tax.


You could buy as joint tenants, both owning 100% of the property and therefore the logical split would be 50/50, even with the varience in your deposit.


You could buy as tenants in common 60/40, so split rent that way.


What is so hard to grasp with, "you need to decide how to split it"?

Guest101

snickpan wrote: »

Another example
House = £200k, I have £90k savings so £10k mortgage.
Business partner has a £100k mortgage.
If total rent is £1000, do we just split it, even though I have invested £90k more?

Are you getting separate mortgages? Seems unlikely, so in reality


You have 90k deposit and 110k mortgage, you business partner has a £110k mortgage.

booksurr

as guest says the determining factor must be how much of the property will you own at the end of the day when the business relationship ends and you sell up.

if you agree you will own 50/50 and the mortgage required is 110, but you only need 10k to get you to your 50% end point (100k each put in), she would need to pay 100/110 = 90.1% of the monthly payment and you would pay 9.9% of the monthly payment

if you want to end up with unequal shares then you need to decide both a) how to account for your deposit and b) how to split the mortgage

for example house 200k. your deposit 90k, you own 45% (90/200) + mortgage share which let us say you agree to a mortgage split of 50/50.
you own 45% + 55%/2 = 72.5%
she owns 27.5%

she gets 27.5% of all income - whether that is enough for her to cover her debt payment of 50% of the monthly mortgage due is her investment problem

snickpan

I think it might be: split the profit 50/50...
We're getting half the property value mortgage each, it's just that I've used more cash initially, so I can enjoy smaller repayments.
As easy as that.
(and then give some to tax man)

getmore4less

You calculate your share of the house based on cash and debt you service.

That's your share of the rent.

You pay your bit of the mortgage from that share you do not deduct the mortgage first.

Same on sale you split the proceeds before you pay off your share of the debt, you don't deduct the mortgage first then split.

bris

I would be looking at the state of the relation ship if your worried about the split tbh, £120 is insignificant. If you can't agree to go 50/50 there is something wrong.

snickpan

bris can lose £120 down the back of the sofa and not care

getmore4less

snickpan wrote: »

I can't fathom it.
My mortgage payment £320
Her mortgage payment £520
Property rental profit £1700

Who gets what each month?

that's a 38.1:61.9 split

snickpan wrote: »

We're not married. Business only.
Due to different deposits ( mine is bigger), her loan is £150000, mine is £90000. I own more of the house, and pay a smaller mortgage.
Percentage seems fair, if I own a bigger percentage of the house.

House value £380000, half each mortgage of £190k.
She has a deposit of £40k, I have £100k.
Obviously there will be tax involved, I just don't know where to start with divvying out the rent

those numbers don't add up

based on the payment split your mortgage numbers are wrong>

If you really mean a mortgage of £240k
100+ 240*0.381 = 191.44
40 + 240*0.619 = 188.56

For 50:50 the split should be 37.5:62.5 or the £840 mortgage split £315 & £525

If the aim was to own 50:50 then the rent is split 50:50 after costs except for the mortgage

if you decide to overpay the mortgage do so at the same % as the current split or you need to a recalculation of the debt.

saajan_12

I think you're intending to OWN the house 50/50, as your higher deposit is countered by smaller mortgage payments. Your 'share' of ownership is
(YOUR DEPOSIT + YOUR MORTGAGE ) / TOTAL PURCHASE PRICE

So the 'fair' thing for me would be you get that percentage of the rent, and then pay tax based on that.

snickpan wrote: »

Another example
House = £200k, I have £90k savings so £10k mortgage.
Business partner has a £100k mortgage.
If total rent is £1000, do we just split it, even though I have invested £90k more?

Your share = 90k deposit + 10k mortgage = 100k (50%)
Partner's share = 0 deposit + 100k mortgage = 100k (50%)

You haven't invested more, just your cash has come in earlier, your partner's is in the form of a loan.

Two things to note however:
1) Your 'shares' of the mortgage are just an agreement between the two of you, so make sure this is clear. The mortgage will likely be joint, so if one fails to pay, the other is liable as far as the lender is concerned. So, you also need to be happy both of you will be ABLE to pay as you are effectively guaranteeing eachother's 'portions' of the mortgage.

2) If your mortgage repayments are much lower, your PROFIT will be higher and so you will pay the lion's share of the tax. However remember you will end up paying less interest so it works out.