tax advice on rental property

semi42

I fill in my self assesment tax form and declare among other things 2 properties we rent out.
my wife earns a lot less than me, should i do the tax calculation on rented properties in her name.
one property is rented to a family member so the house is joint ownership and the other property was inherited to my wife when her father died.
I have also just took on another job so my overall income will increase and the Mrs has dropped a day from work so her income will be less.
Both our incomes and rental payments are paid into our joint bank account

Any advice, gratefully recieved


thanks

Stubod

I am no expert, (hopefully some will be along sometime soon), but I would assume you would declare your income as being whatever the percentage is of your share of the house ownership. ie if you are both on the deeds, 50/50 and you get £6k in total rent then I would assume you would declare £3k as your income?

anselld

If you are joint owners then you need to declare a 50:50 split.

You can only change the income % by changing the ownership, you cannot pick and choose.

00ec25

you are married

property A is jointly owned, so you are deemed to split the income, expenses and rental profit 50:50. That is non negotiable unless you a) own as tenants in common and b) have registered a form 17 and a declaration of trust with HMRC - which patently you have not otherwise you would have said so

property B appears to be legally owned in wife's sole name, but income is received into a joint bank account. Therefore the same situation applies: 50/50
technically that is called taxing the beneficial interest, even though legally there is but one owner

and no, you cannot "declare" all the income in her name just because you want to

semi42

So far ,i have been declaring it all in my name, so in my next self assesment, am i able to declare 50/50 on both properties without issue?

00ec25

semi42 wrote: »

So far ,i have been declaring it all in my name, so in my next self assesment, am i able to declare 50/50 on both properties without issue?

so, as i explained in post 3, so far you have been doing it wrong

bluenose1

Do your earnings and rental income (before expenses) take you into higher rate tax band?
Does your wife earn less than £11,850 per annum?

I don't think you have to be 50/50, you can reallocate income with a Form 17.

As per a Property 118
Restructuring income between spouses is achieved by changing the percentage of beneficial ownership of your rental properties using a Declaration of Trust which does not necessitate refinancing as you are not changing the legal ownership.
Although there is no CGT between spouses you do have to consider Stamp Duty if there is a mortgage and you are transferring a percentage that comes to a proportional amount of more than £40,000.

A Form 17 is then used to register the beneficial ownership with HMRC for tax return purposes.

00ec25

bluenose1 wrote: »

Do your earnings and rental income (before expenses) take you into higher rate tax band?
Does your wife earn less than £11,850 per annum?

I don't think you have to be 50/50, you can reallocate income with a Form 17.

As per a Property 118
Restructuring income between spouses is achieved by changing the percentage of beneficial ownership of your rental properties using a Declaration of Trust which does not necessitate refinancing as you are not changing the legal ownership.
Although there is no CGT between spouses you do have to consider Stamp Duty if there is a mortgage and you are transferring a percentage that comes to a proportional amount of more than £40,000.

A Form 17 is then used to register the beneficial ownership with HMRC for tax return purposes.

you have missed out the fact that a married couple cannot alter the beneficial ownership unless there is a share to be altered, ie tenancy in common, not a joint tenancy

cautious_mum

Frankly the easiest answer is not to bother trying to re allocate property income/ownership, but just allocate it properly to how it is now and keep the income streams separated so that her property income is only dealt with by her (technically). This may benefit the tax you pay as a family, but even if it makes no difference it is the right way to do it

(note I've done mine and my husbands tax returns for a few years now and we have a small amount of rental income, I'm definitely not an expert, but have spent hours sorting this out, but I'm sure others who know more will say if I get anything wrong)

as follows:

1. Maybe you should call HMRC and tell them that you've messed up on previous tax returns (what are the rules on this? Check first). At least you have declared all the income, but it should have been split with your wife. On the plus side you have probably paid more tax than you would have if both of you had done it separately. So at least they can see it's an admin error rather than trying to get out of paying tax.

2. As a matter of urgency get your wife to open an account in her name only (if she doesn't have one). Especially if your income pushes you into higher tax band. You can just split income 50/50 on the tax returns but you've probably been loosing out by having all the income in the joint account (by this I mean the income that is hers alone). Get it sorted before the 2019 tax year, you need next months rent to go to her alone.

Then get all the rental income from the house that is only in her name, put into that account. (this is just if she owns this property outright and your name is not on the deeds) All the stuff to do with that house should be done in and out of that account only. Do not muddy the waters by using the joint account anymore, or having you down as a landlord or anything (if you have done that, you would need more advice how to proceed and you're probably stuck doing it 50/50). You're just paying tax you don't need to by keeping it in a joint account.

Actually open a new joint account as well and use it for the other jointly held property and keep it all separate from both of your wages.
this way there is no confusion and it will help with budgeting, expenses etc and if HMRC need to look at anything.

3. As said by other posters above, you'll need to do a full 50/50 split on rental income on your separate tax returns until you've got past this tax year. (due to the joint account issue) It will be useful to do and apart from your differing paye incomes is quite easy as it's all the same..

4. Once you get to a full year (ie 19/2020 if you open the wife's name account now) where she has her house as rental income separate to you, then hopefully she will be able to claim the full rental income on the house she owns and 50% of the jointly owned one. If she is earning less from her job, hopefully that will be a tax gain for your family.

But of course, if you both pay 20% tax, it wont' actually change the full tax bills overall, but at least it will be split properly. Conversly, if her getting the full income makes her push the 40% barrier, don't bother.

If you get pushed into the 40% bracket, but she isn't, doing it properly you may find that (at least) she will pay less tax on her property as she is only paying 20%. With any luck it may also mean that your income total is less and you may not be paying 40% any more.

As you haven't given any indication, I don't know if this will be the case.

Do have a look at the HMRC webinars/videos as I found them very useful https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
Read it through and I think it gives a link to the videos at one point.

I don't think it will apply to you, but if the income is small and expenses not much, it may be worth your while claiming the new '£1000 allowance' . each (or just you, worthwhile if your split rental income total is less than 2K or there abouts) and then paying tax on the remainder (no expenses allowed).

For us this works really well, as my husband then only had to pay tax on his 50% share, less £1000 allowance and we don't have anywhere near that much in expenses so it was less tax than the previous year. (came in 2017/18 tax year)

Even if you want to follow some of the suggestion above, it might be an idea to at least do what I've suggested first, as that will all take time.

Also, having read all the stuff/videos on property income it really did seem very difficult to change the 50/50 split if it is husband/wife owned property as it isn't intended for jointly held properties, it's more for partnerships (buisness) and I dont' think HMRC look on it too kindly if it's just to get to pay less tax.

I hope this makes sense.

xylophone

one property is rented to a family member so the house is joint ownership and the other property was inherited to my wife when her father died.

The fact that the property A is rented to a family member does not mean that the ownership of the property is joint.

In whose name is the property registered? Is the property actually in joint ownership or is it owned as tenants-in common 50/50 or something different?

As for property B, in whose name is it actually registered? Is your wife the legal and beneficial sole owner of the property?