Is this allowed? Change % income for joint ownership year on year

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    Is this allowed? Change % income for joint ownership year on year

    Hi All

    Just bought a BTL with my partner

    im in the 40% tax bracket and she doesn't work so we'll be splitting the income 1%/99%

    in the 1st year of ownership, I believe we'd benefit more if I took 99% income - as then I'd also take 99% of any running costs for that year, so things like £2k product fee I could offset, electrical inspection costs etc that are incurred in the1st year?

    Overall id expect we'd make a loss in the 1st year (Feb 2020 to April 2020) as income will be low but initial costs high, which i'd then offset against profit I have on other BTLs; we'd then swap my partner onto 99% for April onwards when we're into profit and where she pays less tax

    is that possible please?

    and just to check, when you split 99%/1% you split everything in that proportion (income, costs etc)

    thanks

    #2
    Yes you can't split income separately from expenses over the same timescale. Unless you want to be punished.

    Is your "partner" your wife?

    Comment


      #3
      I don't think you can chop and change to suit your taxation situation each year. In fact I believe there you would need to show why its not 50/50 for HMRC to see it as anything other than tax avoidance. eg. If you put down a deposit and you had a joint mortgage for the rest HMRC would be happy that the split was in your favour but if everything looks 50/50 you might be deemed to be trying to avoid tax.

      Comment


        #4
        Originally posted by bhodgkiss View Post
        Just bought a BTL with my partner
        How is the property owned (joint tenants or tenants in common)?
        Is your partner married to you?
        Is there a mortgage and is it joint?
        Originally posted by jpucng62 View Post
        I don't think you can chop and change to suit your taxation situation each year.
        Yes, you can.

        In fact I believe there you would need to show why its not 50/50 for HMRC to see it as anything other than tax avoidance. eg. If you put down a deposit and you had a joint mortgage for the rest HMRC would be happy that the split was in your favour but if everything looks 50/50 you might be deemed to be trying to avoid tax.
        You can change as many times as you want to minimise the tax you pay.
        Avoiding tax is legal, it's tax evasion that's a problem.

        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          Many thanks
          Yes we're not married so a simple letter to HMRC outlining the split is all we need
          (we own 50:50 as joint tenants and have a mortgage)
          i cant see why we can't do this?
          we're simply defining the split each year, and in a year where we make a loss, I take 99% to benefit tax wise

          Comment


            #6
            My guess is that you'll only do this twice, once, after the first year and (possibly) again when you sell it.
            So I don't think it would attract much attention.

            One thing, if the £2k product fee is a mortgage fee, don't forget it's subject to the restricted relief on finance costs.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              Originally posted by bhodgkiss View Post
              Many thanks
              Yes we're not married so a simple letter to HMRC outlining the split is all we need
              (we own 50:50 as joint tenants and have a mortgage)
              i cant see why we can't do this?
              we're simply defining the split each year, and in a year where we make a loss, I take 99% to benefit tax wise
              This is completely different to the separate issue -- which is whether you can take all the expense and your wife all the income over the same tax year or any time period (or chop and change at a weekly interval to achieve this). But otherwise you can sort of do what you say -- but I think if you do it year by year it is going to come back to bite you. Maybe once or twice over a decade. Presume you are going to get your mortgage company to do the swops in tandem.

              Comment


                #8
                For the avoidance of doubt, I agree entirely that the income and expenses have to apportioned in the same split.

                I don't think that the lender would be concerned, because unlike a married couple, there's no change in beneficial ownership here, it's just two people in business together agreeing how they plan to operate in the next tax year.

                Unlike us weirdos who actually get married and have all sorts of tax issues as a consequence.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  I appreciate tax evasion and avoidance are different jpkeates, but where do you draw the line?

                  My husband and I changed a BTL from joint names to my sole name to save tax. I was asked by my solicitor at the time whether I was likely to sell it in the near future because if HMRC deemed that we had transferred it into my name to avoid tax HMRC could come after me for the tax anyway.

                  I don't know whether this is correct or not but if it is it would seem to me that HMRC would take the same view on chopping and changing the income split.

                  Comment


                    #10
                    Thanks All
                    So yes this sounds like it's fine to do.
                    each year we simply decide the split and let HMRC know with a simple letter
                    And yes I understand ref product fees and now getting less relief under new rules

                    Comment


                      #11
                      Originally posted by jpucng62 View Post
                      I appreciate tax evasion and avoidance are different jpkeates, but where do you draw the line?

                      My husband and I changed a BTL from joint names to my sole name to save tax. I was asked by my solicitor at the time whether I was likely to sell it in the near future because if HMRC deemed that we had transferred it into my name to avoid tax HMRC could come after me for the tax anyway.

                      I don't know whether this is correct or not but if it is it would seem to me that HMRC would take the same view on chopping and changing the income split.
                      Obviously you should take advice from your solicitor over any opinion I offer.

                      The situation with jointly owned property for married couples is different to that of non-married couples.
                      There's a presumption that married couples (while having separate tax affairs) share everything - so beneficial ownership is always an issue.
                      That presumption doesn't seem to exist for non-married (or cp) couples.
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        Originally posted by bhodgkiss View Post
                        Many thanks
                        Yes we're not married so a simple letter to HMRC outlining the split is all we need
                        (we own 50:50 as joint tenants and have a mortgage)
                        i cant see why we can't do this?
                        we're simply defining the split each year, and in a year where we make a loss, I take 99% to benefit tax wise

                        Hi,
                        Would you therefore class yourselves as a Civil partnership and are living together? I don't think a simple letter will suffice.
                        Joint Tenants are unable to split the ownership. You need to be Tenants in Common, then you need to complete Form 17.

                        However, the Mortgage company 'might' require further information as you are changing the ownership. You will have to inform land registry of the new arrangement, plus your lender. I assume the mortgage company based the mortgage taking into account your earnings? or did they just base it on the possible rental income?

                        I also agree that regular changing of ownership could raise issues. But, I would also look at doing the same as you in this case.

                        Comment


                          #13
                          Civil partnership is essentially the same as marriage for tax purposes.

                          Unmarried couples (who aren't in a civil partnership) don't have to split the ownership to account for the income how they see fit, and no form 17 is needed.
                          And no change of ownership means no lender issues.

                          A letter to HMRC saying that we are letting a property we own jointly and have decided to split the income and expenses x:y is all that's needed, as far as I know.

                          PIM 1030
                          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.

                          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, must inform HMRC that their share of profits and losses is to match the share each holds in the property.
                          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                          Comment

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