40% Tax payer married to 20% tax payer.

[moomin101]

Hi my wife and I purchased a BTL property in August 2011,with little regard to the tax implications. I am a 40% tax payer we bought the property together, I recall filling in a form for the solicitor regarding Joint tenants or tenants in common. I have looked in my property purchase file and have the completion statements etc but no reference to the ownership status we chose. where would this be recorded? Also my wife is in the 20% bracket self employed and has to submit a SA form. I do not submit a SA as my tax is deducted by my employer. Now The rent is paid into one of my Wifes bank accounts and the mortgage payments are made from this account so do I even have to declare any interest to HMRC even though we bought the property jointly whether as joint tenants or tenants in common.
Sorry to ramble but think I've provided all the details

Thanks in advance for any help.

[TaxationPete]

Assuming you are joint or 50/50 tenants in common then you both have to declare the rental income and costs 50/50 so both have to inform HMRC that they are a landlords and request an annual SATR.
Ask your solicitor how the property is owned.
Apportioning the rental income can be altered via a declaration of Trust and a form 17 to HMRC. but you need the ownership facts first.
Regards Peter

[moomin101]

Hi
Thanks for your reply Peter
My solicitor has replied saying we bought the properties as joint tenants.
Does that mean we need to have a declaration of trust to apportion the rental income or do we need to change the status of ownership first to tenants in common with unequal ownership percentages?

Regards

[Tuska]

This wasn't a problem for us and we are in exactly the same position.

We bought a flat 50/50 (for mortgage purposes) but once we had completed we filed a declaration of trust with our accountant apportioning ownership 95% in my wife's favour.

[TaxationPete]

And a Form 17 to HMRC. Regards Peter

[Mr Green]

Would I be right in thinking then that in this situation, for income tax purposes, it makes no difference whether ownership is as joint tenants or as tenants in common?

[Tuska]

No. I believe you have to be tenants in common.
However, the declaration of trust can deal with this point at the same time.

[moomin101]

Ok so we need to change the ownership status to tenants in common with a 50/50 split.
Then use a declaration of trust to apportion unequal shares of the rental income in favour of the 20%tax payer, and also notify HMRC with a form 17.

Does any one have a "declaration of trust" template?

Solicitor has quoted £250 per property to change ownership status from joint tenants to tenants in common.

[TaxationPete]

Something not quite right here. If you go T in C say 5% 95% there is no requirement for a D of T as it is defined by the T in C apportioning. A DofT works if you are joint owners. I suggest you contact Lee Young on this forum and ask for guidance or let him do this for your remotely. Regards Peter

[Thompsons]

Sorry to disagree with Pete who is very knowledgeable but, you can probably just include this on your wife's tax return.

In the case of Kings v King (2004)the whole of the rental income was paid into Mr King's bank account and the mortgage payments also came out of this account.
The Special Commissioner held that "Mrs Kings surrendered her entitlement to the rents received.......and that Mr Kings alone is assessable to income tax on the rents received"
This suggests that when rents are paid into the bank account of only one of the joint owners, the whole of the rents are assessable on that person alone.

[Mr Green]

Sorry to disagree with Pete who is very knowledgeable but, you can probably just include this on your wife's tax return.

In the case of Kings v King (2004)the whole of the rental income was paid into Mr King's bank account and the mortgage payments also came out of this account.
The Special Commissioner held that "Mrs Kings surrendered her entitlement to the rents received.......and that Mr Kings alone is assessable to income tax on the rents received"
This suggests that when rents are paid into the bank account of only one of the joint owners, the whole of the rents are assessable on that person alone.

I haven’t been able to find a full report of that case but did come across an extract from Robert Maas’s book “Property Taxes 2011/12” in which he described the decision that Mrs Kings had surrendered her entitlement to the rents and so they were wholly taxable on her husband as “curious”. I do wonder how much of a precedent this actually is – seems very flimsy to me that just because rents are paid into the bank account of one person it follows that the other person has given up any right to them and isn’t taxed. Even less convincing if the funds are then used for joint expenses like household bills or holidays.

[Thompsons]

seems very flimsy to me that just because rents are paid into the bank account of one person it follows that the other person has given up any right to them and isn’t taxed. Even less convincing if the funds are then used for joint expenses like household bills or holidays.

Flimsy or not, this case has been decided and I think I could easily make an argument that income had been surrendered to the lower taxpayer on that basis alone.
The funds being used for joint expenses is irrelevant.