Rental income joint ownership and tax

reveller

HI,

My boyfriend and I jointly own a house in Bristol and due to his contract expiring in a few months, we may have to move elsewhere for work. We like Bristol and would likely move back again in a few years and the house prices are rising faster than many other areas so we are considering letting out our house to tenants while we rent elsewhere.

Unfortunately I am close to the higher rate tax freshold while my boyfriend earns 10k less than me. Would it be legal for all of the rental income to go to him for tax purposes?

I ask, as the changes to tax on rental income are changing next year so a mortgage can't be set against profit when calculating tax and without that I am wondering if our house would be better off left empty rather than rented out with all the financial risks that involves. I don't want to charge an extortionate amount of rent, just merely cover the costs of the mortgage so we don't find ourselves locked out of Bristol in the future.

da_rule

Assuming you own the property 50/50 then any profit would be shared this way.

You could change the ownership of the property to give him a larger share, then change it back when you move back to Bristol. But you would want a contract with him that would protect you should the relationship go wrong.

As it sounds as though there is a mortgage on the proeprty you would need their consent to let it out.


There is probably also a clause in your contract with the mortgage company and your insurance company that the house cannot be left empty for a prolonged period (roughly a month), so again this would need to be addressed if you decide to leave it empty.

If you can get permission, just do a backwards calculation on how much you would need to charge in rent to cover your costs and pay the higher rate of tax.

G_M

If you own as Joint Tenants, you each (jointly) own 100% and must share the income 50/50.

You could change your ownership to Tenants In Common and specify (ideally via a legal Deed) who owns what %. (eg you 10% & boyfriend 90%). You would then share the rental income 90/10, and be taxed accordingly.

You would probobly also be wise to write wills. Where one Joint Tenant dies, the other automatically inherits (since you each (jointly) own 100%). But with TIC, inheritance is as defined in a will, or if no will then by the rules of intestate.

The risk, of course, is that if you separate, and then sell, your boyfriend could walk off with 90% of the sale proceeds........

reveller

Fortunately after 12 years I am pretty sure I trust him but then everyone says that until it goes wrong. Thanks for the reminders if the other bits like empty clauses. I'd forgotten about that.

booksurr

reveller wrote: »

HI,

My boyfriend and I jointly own a house in Bristol and due to his contract expiring in a few months,

you are not married so the comments above are incorrect

therefore you are entirely free to agree how you split the rental income between the two of you. This means you do not have to split it 50/50 if you are Joint Tenants nor split it per your actual ownership shares if Tenants in Common

read this https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030
bearing in mind "partnership" is used in the context of a formal business arrangement hence it is most unlikely that "mere" letting of a property will be a partnership business. So the key rules to take on board is section 2:

"Jointly owned property - no partnership
.... But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed."

what that means in practice is it is best that the two of you write down who gets what share then if HMRC ever challenge your tax return you can produce documentary evidence to support that the share agreed is the share declared for tax

Note - if you do get married the rules are different

tlc678910

Hi, I just wanted to explore your presumption that you might be better off not letting your house and leaving it empty.

In an attempt I'll try to run some very crude numbers:
Let's say you let at £600 to cover a repayment mortgage, of which £300 is paid off your capital and £300 is interest. Totalling £3,600 paid off the capital and £3,600 in mortgage interest.

If the house was owned entirely by a higher rate tax payer (in my very basic understanding - apologies if I am corrected) they would pay 40% tax on the capital repaid (the profit) so £1,440 on that part and 20% tax on the mortgage interest (as there will be a 20% basic rate credit I think) so £720 tax to pay on that part.

I make that a total tax of £2,160 on an income of £7,200, so a sole higher rate tax payer would be £5,040 better off renting out than leaving the place empty (and paying that mortgage anyway probably along with council tax too).

In reality you don't expect your partner to be a higher rate tax payer and so the tax will be less. You will have other costs of being a landlord of course (but can deduct these from the profit for tax calculation).

The downside in your situation is finding the cash to pay the tax when your rental receipts have gone into the mortgage but as the alternative you are considering is keeping the place empty obviously you would need a lot more cash to pay the mortgage than this.

I think as you obviously want little risk and aren't in desperate need of the cash your priority should be getting the highest quality tenants you can. Get your letting permissions early, consider a letting agent that you find friendly and professional in your enquiries, and offer a competitive rent, allowing time for prospective tenants to give notice so you can have the tenants that you choose rather than the ones that choose you.

Good luck
Tlc

Lloyd90

Where in Bristol is it?
What type of property?