Tenants in Common Tax Benefits

50_Hertz

Good afternoon,

My wife and I own a second home which we let to a long-term tenant. We own the house on a Tenants in Common basis, with the split 50 / 50. The house generates £10K gross per year and there is no mortgage or other loan against the property.

I receive a pension which puts me well into the 20% tax bracket, so all of my income from the rental house is currently taxed at 20%. My wife is due to leave her job next month and will have no income at all for two years until her LGPS kicks in.

Under the above circumstances, would it be beneficial, from a tax point of view, to alter the ownership split on our second home to say 95% / 5% with my wife owning the 95% share? Am I correct in thinking that the £9500 per annum rental income my wife would receive from the rental house under this arrangement would be tax free?

Thank in advance for any information.

xylophone

https://www.whitefieldtax.co.uk/declaring-rental-income-on-jointly-owned-properties/
may help.

00ec25

50_Hertz wrote: »

Good afternoon,

My wife and I own a second home which we let to a long-term tenant. We own the house on a Tenants in Common basis, with the split 50 / 50. The house generates £10K gross per year and there is no mortgage or other loan against the property.

I receive a pension which puts me well into the 20% tax bracket, so all of my income from the rental house is currently taxed at 20%. My wife is due to leave her job next month and will have no income at all for two years until her LGPS kicks in.

Under the above circumstances, would it be beneficial, from a tax point of view, to alter the ownership split on our second home to say 95% / 5% with my wife owning the 95% share? Am I correct in thinking that the £9500 per annum rental income my wife would receive from the rental house under this arrangement would be tax free?

Thank in advance for any information.

on the numbers you present yes, a no brain solution would be to make the wife the majority beneficial owner

note use of the term: beneficial owner
you are a married couple, and already have the legal ownership as tenants in common. Therefore varying the split from 50/50 is a simple 3 step process:

1. complete a Form 17
https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

2. Complete a declaration of trust (DoT) stating the % she wants and the % you want. You do not need to alter the legal ownership. It remains TIC.

3. send both to HMRC within 60 days of both signing the form 17. Apply the % split for tax purposes wef the date of signing.

Background reading for you:
https://www.rocketlawyer.co.uk/article/legal-interest-and-beneficial-interest-in-property.rl

https://www.rocketlawyer.co.uk/article/declaration-of-trust.rl

https://www.deedoftrust.co.uk/hmrc-guidance/ (particularly the pages on Form 17 and overview of tax on property)

50_Hertz

Thank you very much for the contributions, it makes the process of adjusting the beneficial ownership clear and I understand the process.

This now causes me to anticipate the situation when we come to sell the house. As I understand things today, the first £12000 of any gain on the sale of the house is tax free and this can be combined with my wife to make a total of £24000. But what if my wife has 95% beneficial ownership for tax related rental income purposes, as outlined in my original post? My guess is that we would lose the ability to combine 2 x £12000?

How easy, or is it even possible, to flip the beneficial interest back to 50/50? I ask this because in two years time my wife will receive a pension which will remove all tax advantages from the proposed 95% / 5% split. The timeline of ownership will look something like this:

2017 Initial property purchase followed by 2 years 50 / 50 split in beneficial ownership.

2019 Adjust beneficial ownership to 95% / 5% in my wife’s favour. (To take advantage of wife’s tax allowance)

2021 Adjust beneficial ownership back to 50 / 50. (Rental income tax advantage ceases)

2027 Sell property and utilise 2 x £12000 CTG allowance.

Is this possible or am I being fraudulent?

00ec25

pity you have not yet read the links as they are full of facts that answer your question (and questions you have not yet thought of)

https://www.deedoftrust.co.uk/hmrc-guidance/ (particularly the pages on Form 17 and overview of tax on property)

for tax purposes you can vary as much and as often as you want as long as you are a legally married couple .

seven-day-weekend

Please forgive me if what I am about to ask is not simple - whilst I have some talents, number-crunching is not one of them.

We also own an unencumbered property 50/50 and are married. All our income, other than from the property, is from Pensions. We are both 20% taxpayers.

Last year I paid a total of £5 in tax (the property income pushing me just above the tax-free threshold). My husband paid an extra £1000, because of the rental income.

Is it possible to organise the ownership of the property to pay less tax between us, or will it just even out ?

Thanks in advance and I apologise if it is not possible to answer

(Just read the quoted link : Although it is split 50/50 at the moment, in practise I put in most of the money from an inheritance).

csgohan4

seven-day-weekend wrote: »

Please forgive me if what I am about to ask is not simple - whilst I have some talents, number-crunching is not one of them.

We also own an unencumbered property 50/50 and are married. All our income, other than from the property, is from Pensions. We are both 20% taxpayers.

Last year I paid a total of £5 in tax (the property income pushing me just above the tax-free threshold). My husband paid an extra £1000, because of the rental income.

Is it possible to organise the ownership of the property to pay less tax between us, or will it just even out ?

Thanks in advance and I apologise if it is not possible to answer

#3 answers your questions to vary the share of the rent

seven-day-weekend

csgohan4 wrote: »

#3 answers your questions to vary the share share of rent

Thanks, I have edited my post to say that although it is split 50/50, I actually put in most of the money from an inheritance).

50_Hertz

00ec25 wrote: »

pity you have not yet read the links as they are full of facts that answer your question (and questions you have not yet thought of)



for tax purposes you can vary as much and as often as you want as long as you are a legally married couple .

Sorry, I thought I had been through the links, but I have missed some information. My mistake.

Thanks for your help.

00ec25

seven-day-weekend wrote: »

Thanks, I have edited my post to say that although it is split 50/50, I actually put in most of the money from an inheritance).

if you are sure you own as Tenants in Common then it is irrelevant how much each person put in unless you intend to get a divorce and fight over the spoils

for income tax on rent it comes down to whatever the pair of you decide you want to call your respective shares - nothing to do with anything else, nor is it based on a formula, nor who paid what.