The tax positon on Buy to Let

Del_Boy_Gupta

I have a joint mortgage with my partner who is not employed. I am employed and as such pay tax on my income. My partner receives no benefits and as such has not used any part of her tax free allowance.

We have a buy to let property and upon speaking to a mortgage broker I asked him how HMRC would view the rental income in that would they automatically assume that on a joint mortgage that 50% is my share and 50% my partner's and consequently that both of us would need to pay tax and complete a self assessment form?

the broker's view was that if my partner was solely responsible for the day to day running of the buy to let in that she received the rental income, paid the expenses etc , then only she would need to complete a self assessment form but that this would invariably show that no tax was due given she could offset her tax free allowance agains tthe 'income'.

I would welcome any tax expert's view on whether the broker is correct or can we not split the income solely into my partner's name?

clutton_2

have a read of taxcafe website there are some good BTL tax experts on there

MarkyMarkD

The broker is a complete idiot.

If the property is jointly owned, there is no way for the income to be split other than 50:50 unless you alter the ownership through a solicitor to be in a different share ratio. There's nothing to stop you doing this, but you would need the lender's permission as it's a change in the ownership structure. Having said that, I doubt they would be bothered given the same two owners are involved before and after the transaction.

You should have informed HMRC of the commencement of your letting business as soon as it started. Changing the ownership proportions now won't be retrospective either, so you are going to have some income to declare whatever you do in future.

Del_Boy_Gupta

Just to clarify the property was in my sole name previously and the rental income and expenses were received by me- following a remortgage it is now in joint names and everything to do with the property is dealt with my my missus.

Pennywise

Your broker may be right - have a look at the HMRC property income manual:-


http://www.hmrc.gov.uk/manuals/pimmanual/PIM1030.htm



"Jointly owned property - no partnership

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. "

To take advantage of this, the rental income, mortgage payments and other expenses must actually be paid to/by your partner, i.e. their own separate bank account. You don't need to formally change the ownership of the property to do this, but you would be wise taking proper professional advice from an accountant and solicitor to make sure that you do the formalities/paperwork correctly, in particular, you need the ownership to be right, i.e. you need to know whether it is owned as joint tenants or tenants in common, and then change it accordingly as necessary.

MarkyMarkD

That's an incredibly woolly bit of wording.

The worst bit is "you need to know whether ... and then change it accordingly as necessary".

Hang on - I have just read the link. Isn't the woolly bit your wording, and not HMRC's?

You've also missed out a large and relevant part of the HMRC guidance:

However, where the joint owners are husband and wife, or civil partners, profits and losses are treated as arising to them in equal shares unless:

* both entitlement to the income and the property are in unequal shares, and
* both spouses, or civil partners, ask their respective tax offices for their share of profits and losses to match the share each holds in the property.

which tends to contradict the section you have quoted, at least for married couples.

Del_Boy_Gupta

basically it appears that it is unclear and whilst it appears you cant split apart form 50: 50 it may be possible if the entitlemtn to the income and the property are in unequal shares- The question is how do you show that this indeed is the case?