Can my other half claim all the rental income on a shared property?

[johnsmith0774]

Hi,

Sorry if this question has come up before but i'm finding it hard to get a definite answer.

Me and my girlfriend are unmarried and own a house we rent out, we own 50% each on the deeds.

She's finishing work soon to have a baby and I pay 40% tax. Is there a way we can put all the income in her name to reduce the tax bill?

Many thanks

[King_Maker]

The short answer is Yes, provided there is a suitable agreement (preferably in writing) in place. All rents should go into a sole account in her name - likewise the expenses.

Do a Search for more detailed answers.

[johnsmith0774]

thanks for the reply, thats good to know.

i have been searching and i have found it hard to differentiate facts from opinions which is why i came here. do you know how i arrange such an agreement? is it as simple as a written agreement between us or do we have to inform hmrc? many thanks

[JMansley]

This depends on the type of tenancy. Joint tenants will be taxed equally for both income tax and CGT regardless of any agreements setting out shares.

You can define beneficial ownership if you are tenants-in-common. This is done via a declaration of trust. As you are unmarried, you don't need to inform HMRC of the split.

There is one snag to doing this: since you are unmarried, the transfer from 50:50 to 99:1 will trigger a disposal for capital gains tax purposes and CGT may be due at 28%. However, if the market value of your half less half the allowable costs - purchase price, stamp duty, professional fees, etc - is less than the annual exemption then the transfer can be made without tax implications. Another solution is to transfer beneficial ownership in stages over a number of tax years.

Other issues with a tenancy-in-common:

- The property will not automatically pass to the other beneficial owner, unlike with a joint tenancy
- You cannot revert to being joint tenants

If tenancy-in-common is something you wish to pursue then you will need to speak to a solicitor.

[King_Maker]

JMansley,

I would have to disagree for unmarried joint owners

IMHO, the type of joint ownership is not relevant.

The income sharing ratio can be different to the capital sharing ratio.

From HMRC's Property Income Manual :

"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."

http://www.hmrc.gov.uk/manuals/pimmanual/pim1030.htm

[Gordon999]

For producing a written agreement , see thread about "profit allocation agreement" :

http://www.landlordzone.co.uk/forums...tion-agreement