Splitting Property income - unmarried couple

I wonder if anyone could advise on this situation.

My partner and I started renting our old house back in September 2019. We originally intended to each do a tax return based on 50:50 income split so both registered for self-assessment to do this. This gives us an estimate tax bill between us of around £900 for the tax year 2019/20.

However, due to one reason and another she did not actually earn enough in the tax year to use up her personal allowance. In fact, even with all the rental profit she would remain under this level.

Thus it seems obvious that we should proportion all of the property income to her and I should claim none. I understand this is perfectly allowable under the rules.

However, there is the additional complication that for one reason and another we were not particularly efficient with our banking. I have always paid our mortgage from my own current account and she has paid me her half monthly. When we started renting the property, I received the rental income to my account in it's entireity and continued to pay all the mortgage. The mortgage outgoings are always higher than the rental income as we overpay so there is no appreciation of rental related funds.

Given the banking situation is HMRC likely to take a dim view of the situation if she submits a tax return for 100% of the profit and I inform them that I no longer need to make a tax return?


Comments

  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 13,149
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    edited 27 November 2020 at 12:10PM
    Thus it seems obvious that we should proportion all of the property income to her and I should claim none. I understand this is perfectly allowable under the rules.

    What "rules" would they be?


    My partner and I started renting our old house back in September 2019. We originally intended to each do a tax return based on 50:50 income split so both registered for self-assessment to do this. This gives us an estimate tax bill between us of around £900 for the tax year 2019/20.
    Given the banking situation is HMRC likely to take a dim view of the situation if she submits a tax return for 100% of the profit and I inform them that I no longer need to make a tax return?

    What have you done to get to the position of having a figure of £900?

  • cubegame
    cubegame Posts: 2,042
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    Thus it seems obvious that we should proportion all of the property income to her and I should claim none. I understand this is perfectly allowable under the rules.

    What "rules" would they be?


    My partner and I started renting our old house back in September 2019. We originally intended to each do a tax return based on 50:50 income split so both registered for self-assessment to do this. This gives us an estimate tax bill between us of around £900 for the tax year 2019/20.
    Given the banking situation is HMRC likely to take a dim view of the situation if she submits a tax return for 100% of the profit and I inform them that I no longer need to make a tax return?

    What have you done to get to the position of having a figure of £900?

    The HMRC Property Income Manual states an unmarried couple may apportion the income as they choose.
    £900 is approximatly 20% of our income minus the rental cost.
  • Have you included mortgage interest (or capital repayments) in your costs?
  • cubegame
    cubegame Posts: 2,042
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    Have you included mortgage interest (or capital repayments) in your costs?
    I have just included mortgage interest charges (part as an allowable expense and part as an income tax credit as per the allowed proportions for the tax year 19/20).
  • Jeremy535897
    Jeremy535897 Posts: 10,407
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    If you own the property as joint tenants, you will be treated for tax and legal purposes as owning the property 50:50. You will have to specify a different allocation as stated in https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

    I don't think you can do 100:0, but you could do 99:1. I would suggest that the declaration should be done before the start of the tax year in question, and it does not look very good if all the rent is received by the partner entitled to 1% of it.
  • K_S
    K_S Posts: 6,694
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    edited 28 November 2020 at 1:40AM
    @cubegame As unmarried joint owners, you can vary the income and expenditure shares in any proportion you may wish to use.

    It would be helpful to document that, just a simple statement with your signatures saying that you own the property 50-50, but we have agreed to split it 99-1 for tax purposes.

    As I understand it, there is no requirement to inform HMRC.

    I am a Mortgage Adviser - You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. 

    PLEASE DO NOT SEND PMs asking for one-to-one-advice, or representation.

  • You have to declare the income based on beneficial ownership. If you declare all the income on your partners tax return, what you are saying is that she is 100% beneficial owner. Meaning, when/if you sell the property she would also be entitled to 100% of the sales proceeds.

    You can change the beneficial ownership with a trust deed but as you are not married this will have CGT and even SDLT consequences.

  • Jeremy535897
    Jeremy535897 Posts: 10,407
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    You have to declare the income based on beneficial ownership. If you declare all the income on your partners tax return, what you are saying is that she is 100% beneficial owner. Meaning, when/if you sell the property she would also be entitled to 100% of the sales proceeds.

    You can change the beneficial ownership with a trust deed but as you are not married this will have CGT and even SDLT consequences.

    No, see https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030 and my post earlier about a 99 to 1 split.
  • You have to declare the income based on beneficial ownership. If you declare all the income on your partners tax return, what you are saying is that she is 100% beneficial owner. Meaning, when/if you sell the property she would also be entitled to 100% of the sales proceeds.

    You can change the beneficial ownership with a trust deed but as you are not married this will have CGT and even SDLT consequences.

    No, see https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030 and my post earlier about a 99 to 1 split.
    I disagree.

     If you agree to split the income 99:1 that changes the beneficial ownership. I quote from your link 'The share for tax purposes must be the same as the share actually agreed'. If one partner declares 99% of the income, they have 99% of the beneficial ownership of the property. Is one joint owner holding the property on bare trust for the other?

    The rules around partnerships are irrelevant as one BTL property would never qualify as a partnership unless an FHL.
  • Jeremy535897
    Jeremy535897 Posts: 10,407
    First Anniversary First Post Name Dropper
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    You have to declare the income based on beneficial ownership. If you declare all the income on your partners tax return, what you are saying is that she is 100% beneficial owner. Meaning, when/if you sell the property she would also be entitled to 100% of the sales proceeds.

    You can change the beneficial ownership with a trust deed but as you are not married this will have CGT and even SDLT consequences.

    No, see https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030 and my post earlier about a 99 to 1 split.
    I disagree.

     If you agree to split the income 99:1 that changes the beneficial ownership. I quote from your link 'The share for tax purposes must be the same as the share actually agreed'. If one partner declares 99% of the income, they have 99% of the beneficial ownership of the property. Is one joint owner holding the property on bare trust for the other?

    The rules around partnerships are irrelevant as one BTL property would never qualify as a partnership unless an FHL.
    The full paragraph says:
    "Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed."

    That clearly envisages a situation where the share of ownership is different to the income split. The last sentence merely says that if the two parties agree to share income 99 to 1, that is what they have to declare, not something else. For what it is worth, it surprises me too, but it is an oft quoted tax planning technique for unmarried couples.
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