Property income Q

sarah69696pink

Hi All,
I own a property I rent out and I pay 40% tax on any profit made. I am now married and my husband earns less than me and does not come into the 40% tax bracket. My question therefore is now we're married and the property is therefore jointly ours can he do the self assessment return for the property rather than me in order to pay 20% tax on profits? Or do we both do a return for half of the profit each?
Also any thoughts on how this would impact capital gains tax when I sell (I lived in the property for 7 years, and he lived in it with me for 3 of those years)
Thanks

00ec25

in shortened form answer

• marriage does not make him an owner it if it is legally still in your sole name
• he needs to be a joint owner, and you both need to do a deed of trust and a form 17 in order to split the income in unequal proportions, or he is co owner and must use 50/50
• it was not his home whilst he was an owner, so the CGT will be greatly impacted. The way round that is to very carefully time the transfer back to you as sole owner well before selling

sarah69696pink

thank you so much - this is really helpful - I shall do some more reading - but looks like may be best just keeping it as mine for now as looking to sell in a year or so I think

00ec25

sarah69696pink wrote: »

thank you so much - this is really helpful - I shall do some more reading - but looks like may be best just keeping it as mine for now as looking to sell in a year or so I think

if you plan to sell in one year then there is little/no point in faffing around adding him to the deeds to save a bit of income tax if you htne have to take him off the deeds in order to have a definite gap before you start marketing the property for sale. No gap and you risk HMRC refusing to accept the transfer back to your sole name and therefore his GCT being based on 50% value with no private residence relief and no letting relief.

of course if the gain is not more than 22,600 then there may be a case for the transfer anyway as his personal allowance 11,300 and your 11,300 would mean there is no CGT payable anyway if the gain was that small and was split 50/50. If not, you need to crunch the real numbers and take a punt.

laticsforlife

I think you can solve this by setting up (very easily) a partnership between you and your husband for the rental income business.

A very simple deed of partnership (should be able to find one for free on the internet, or just draw one up using common sense words setting out the rules) basically saying we are in partnership from xxx date, and share 50% each etc.

Then you tell HMRC on your next returns, ceasing your sole trade and commencing a partnership, filling in those pages. Hubby does similar from him being anew in a partnership plus his PAYE income.

So long as you can say you both do something in the business then the share is up to you, and it's no sham. Say he is responsible for the small maintenance, and you collect the rent, that would be fine in my eyes.

None of this changes CGT as you alone own the property unless you sell half to husband, and that will involve solicitors.

The CG extra I think is going to be 10% saving of half the gain (28%-18%) plus 18% of a second AEA £11,300 (is that right, can't do the math on a Friday)?

Might be worth the cost of transferring, suppose it depends on what the gain is.

Dazed_and_confused

But is it actually a business?

Can rental income be a partnership for tax purposes?

00ec25

laticsforlife wrote: »

I think you can solve this by setting up (very easily) a partnership between you and your husband for the rental income business.

not as "easy" as you imply
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

"When does a partnership exist?
Whether or not a taxpayer is a member of a partnership depends on the facts. A partnership is unlikely to exist where the taxpayer is one of a group of joint owners who merely let a property that they jointly own. On the other hand, there could be a partnership where the taxpayer is one of a group of joint owners who:

• let the jointly owned property, and
• provide significant additional services in return for payment.

Much depends on the amount of business activity involved. "

Pennywise

Dazed_and_confused wrote: »

But is it actually a business?

Can rental income be a partnership for tax purposes?

No, just renting out a property is passive income, hence investment income rather than a trade/business.

sarah69696pink

thanks everyone - the gain I would make on the property is small (less than £20k) so looks like will be best transferring to him so we don't have to pay CGT?

00ec25

sarah69696pink wrote: »

thanks everyone - the gain I would make on the property is small (less than £20k) so looks like will be best transferring to him so we don't have to pay CGT?

is this 20k gain after you have allowed for your own private residence relief and letting relief claims?

if you make him a co-owner he won't get such relief, so the overall taxable gain will increase, so may no longer be covered by the 2 sets of personal allowances. You also run the risk of selling too soon after the transfer and thus risking HMRC setting aside the transfer.

until we see the actual numbers no one can offer real advice.