Sharing the tax liability on rental income

kdLeeds

Hi. Can anyone advise on sharing a tax liability on joint income please.


My wife and I purchased a small house as an investment and rent it to our son and his partner.


The rent is paid into our joint current account and as the house is equally owned between me and my wife, I assumed that the tax liability would have to be shared 50/50.


As I am a tax payer and my wife is not, it would make sense if all or most of the liability went to my wife.


I had a brief telephone conversation with HMRC yesterday, and they seemed to indicate that the split need not be 50/50 it depends on how my wife and I split the income.


My question is how do we describe or prove how the income is split.


Does anyone have any first hand experience of this situation?


All advice welcome. Thanks

antrobus

kdLeeds wrote: »

...The rent is paid into our joint current account and as the house is equally owned between me and my wife, I assumed that the tax liability would have to be shared 50/50....

That assumption is correct.

kdLeeds wrote: »

...As I am a tax payer and my wife is not, it would make sense if all or most of the liability went to my wife....My question is how do we describe or prove how the income is split...

Easy. Change the ownership of the house.

See:

Property jointly-owned by married couples or civil partners
https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-case-studies

kdLeeds

Thank you for your quick and helpful reply.

pafpcg

By default, HMRC assume a 50:50 split in any jointly-owned property. You can vary the proportions as required by sending HMRC a "Form 17" giving details of the property and the desired split.

However, the form also asks for: "Send evidence of the beneficial interests you have declared". You'll have to justify to HMRC's satisfaction that your non-taxpaying partner really does own all the the property. My understanding is that you can't arbitrarily transfer assets between partners just to minimise the amount of tax paid.

In my case, my partner inherited her mother's house. Although after probate we registered the property at the Land Registry in our joint names (perhaps a mistake!) but we provided copies of the will showing the bequest solely to my partner together with the probate documentation. We eventually received a curt letter from HMRC acknowledging receipt of the form and the declaration. Four years on, all the rent for the house has been included in my partner's tax return without any complaint from HMRC.

kdLeeds

Thank you for your help. My circumstances are very similar to yours.

00ec25

pafpcg wrote: »

However, the form also asks for: "Send evidence of the beneficial interests you have declared". You'll have to justify to HMRC's satisfaction that your non-taxpaying partner really does own all the the property. My understanding is that you can't arbitrarily transfer assets between partners just to minimise the amount of tax paid.

your understanding is correct

where you do not want to use the default 50/50 split then "the evidence" will comprise a Declaration of Trust (or Deed of trust) stating the actual split you want.

that is relatively straightforward to draft, but what people need to understand is that if the property is owned as Joint Tenants you cannot split it since in that case the 50/50 is the only allowed split because, technically, there are no actual shares with a JT. The owners each own 100% of the property equally.

Instead you must own the property as Tenants In Common (TIC) as that means there are actual shares which can be allocated to each owner - hence the DoT

if owned as JT then you must change the basis of the ownership at the Land Registry over to TIC in order to have a valid basis for evidencing the Form 17

kdLeeds

Thanks again to all who took the time to help