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Can I declare my rental income as my wife’s for a jointly-owned property?


Can I declare my rental income as my wife’s for a jointly-owned property?

Where property is jointly-owned, the way in which the rental income can be split between the joint owners for tax purposes depends on whether the joint owners are married or in a civil partnership or not.

Married couples and civil partners

Where a property is jointly owned by a married couple or civil partners, the basic rule is that the rental income is split equally, regardless of the actual underlying ownership.

Example

John and Sally are married. They jointly own a flat in which John has a 70% stake and Sally has a 30% stake. The flat is let out. The rental profit is £8,000 a year.

Despite owning the property in unequal shares, John and Sally are both taxed on 50% of the rental income (£4,000).

However, where the beneficial ownership is unequal, the couple can elect (on Form 17) for the income to be assessed for tax purposes in accordance with their actual beneficial shares.

In the above example, were John and Sally to make a Form 17 election, John would be taxed on rental profits of £5,600 (70%) and Sally would be taxed on £2,400 (30%).

For married couples and civil partners, the only permissible allocations are 50:50 (the default position) and, on the making of a Form 17 election, in accordance with actual ownership where the property is owned in unequal shares.

Joint owners who are not married or in a civil partnership

Where a property is owned jointly by individuals who are not married or in a civil partnership, it is usual for the rental income to be allocated in accordance with the ownership share.

However, the joint owners can agree to a different division of profits and losses – the allocation for tax purposes does not have to mirror the actual ownership of the property.

Example

Jake and his girlfriend Jade jointly own a flat which they let out. Jake owns 20% of the property and Jade owns 80% of the property. The rental profit is £10,000 a year.

Jade has £3,000 of her basic rate band available, whereas Jake has £9,000 of his basic rate band available. Therefore, to minimise the tax payable on the rental income, they agree that it will be shared so that Jade receives 30% (£3,000) and Jake receives 70% (£7,000).

Where joint owners are not married or in a civil partnership it is possible to agree an actual allocation that minimises tax. However, depending on the relationship between the owners, the tax considerations may be secondary as each owner may be keen to receive a share of rental profits proportionate to their actual stake in the property.

Our approach

If you would like to discuss the above, or any other property tax planning matters, please contact us for a free consultation.