Split ownership of rental property and tax on rental income

ShellyBarry

Hi All, my scenario is as follows: My younger brother and I are in the process of buying a rental/investment property, where we will each contribute 50% of the deposit. Due to my brother's financial status we are working on the basis that it will only be me holding the mortgage on the property. In order to reflect the 50% split in deposit contribution, we will therefore aim to ensure that income and expenditure on the property is ultimately split evenly between us.

And so this bring me on to the question of the tax payable on the rental income. I am a higher rate tax payer, whilst my brother is basic rate.

We would like to avoid paying a rate of 40% on 100% of the rental income. What options exist which would allow us to split the rental income between us for tax purposes? If this entails a part transfer of ownership of the property from me to my brother, are there capital gains consequences?

Thanks in advance for any help

00ec25

why are you buying a rental property without having found out first how tax works?

does your brother expect to get his 50% deposit back ?
yes? then he has CGT implications

do you wish to get no rental income and avoid any 40% tax?
if yes then simply let him take all of the income, all of the expenses and all of the taxable profit.

somewhere between those extremes is what you should be talking to your accountant about to ensure you get it right from the outset

skippie

I found an accountant to sort it out for my wife and I.

pphillips

ShellyBarry wrote: »

Hi All, my scenario is as follows: My younger brother and I are in the process of buying a rental/investment property, where we will each contribute 50% of the deposit. Due to my brother's financial status we are working on the basis that it will only be me holding the mortgage on the property. In order to reflect the 50% split in deposit contribution, we will therefore aim to ensure that income and expenditure on the property is ultimately split evenly between us.

And so this bring me on to the question of the tax payable on the rental income. I am a higher rate tax payer, whilst my brother is basic rate.

We would like to avoid paying a rate of 40% on 100% of the rental income. What options exist which would allow us to split the rental income between us for tax purposes? If this entails a part transfer of ownership of the property from me to my brother, are there capital gains consequences?

Thanks in advance for any help

If you are owning the property as tenants in common, you can split your ownership in equal or unequal shares and pay income tax individually according to your share.

Capital gains consequences occur if you dispose of an asset (or part of it) to someone and that asset has increased in value since you acquired it.

Kynthia

When joint owners for a property are unmarried they don't need to split rent and expenses in the same percentage as the ownership of the property. So owning equally doesn't mean you need to split income 50:50.

However you can't say income is one percentage for tax purposes and then in reality keep more, as that's tax fraud.

dimbo61

You need professional advice on how to buy this property and how to split the income or losses from owning a BTL

Dazed_and_confused

Due to my brother's financial status we are working on the basis that it will only be me holding the mortgage on the property

Are you aware you can no longer claim all your mortgage loan interest as an expense against the rental income?

From 6 April 2019 you will only be able to claim 25% of it as an expense.

From 6 April 2020 you won't be able to claim any of it as an expense.

00ec25

Dazed_and_confused wrote: »

Are you aware you can no longer claim all your mortgage loan interest as an expense against the rental income?

From 6 April 2019 you will only be able to claim 25% of it as an expense.

From 6 April 2020 you won't be able to claim any of it as an expense.

your comment is so simplified it is misleading
here are the real rules:
https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies