Jointly owned property - no partnership

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    Jointly owned property - no partnership

    Hi all,

    I've rented out my old property now since February 2014, all is going well but now need help regarding the taxable income and how me and my partner can split the income for tax purposes.
    I've done some research and it seems following section 1030 of the property manual i found the following quote:

    “joint owners can agree a different division of profits and losses and so occasionally the share of profits or losses will be different from the share in the property. The share for tax purposes must be the same as actually agreed.”

    Me and my partner now own the property in joint tenancy as of august 2014, before that date it was owned solely by myself. Is it correct for me to assume if we wanted we could create a DoT and set the income in a 100-0 split if we desired? If this is the case then lets say HMRC wanted to review this, it seems they would check to see if the income went into the correct individuals bank account following the declared split. What happens if the income goes into a joint account, as it does with us currently. Would this mean it affectedly means we would have to split it 50-50 or go through the hassle of ensuring the income goes into separate accounts according to the split.

    Another query is that i understand that once the DoT has been created we can't change this. Is this on a year to year basis or indefinitely? Also when we do get married does it automatically revert to be taxed on a 50-50 basis or do we have to write to HMRC to say we are married?

    Also i've seen people telling people to be sure to think it through due to not being able to change the income split in the future, what possible issues could we come across that needs to be taken into consideration?

    Thankyou in advance for any input
    Regards, Tom.

    #2
    Unlike married couples (and Civil Partners), other joint owners can agree between themselves how to share the rental income & expenses, and the disposal proceeds of the property. The three sharing ratios do not have to be the same. It is prudent to have robust documentation from the outset.

    HMRC require that the reality reflects the relevant agreement. This is why it is preferable for the bank account(s) do this.

    A DoT can be amended at a later date, or a new one substituted. HMRC are likely to challenge any obvious manipulation to obtain a tax advantage - especially if it occurs on a regular basis.

    Note that every change in the capital sharing ratio is a disposal for CGT purposes, and there is no inter spouse exemption.

    On marriage, the DoT remains in force, unless it states otherwise or joint LEGAL ownership occurs. With the latter, a Form 17 will have to be filed with HMRC within 60 days.

    Professional legal & accounting/tax advice is recommended.

    Comment


      #3
      If only one of you lived in the property at some point, you need to consider the CGT impact on sale.
      The reliefs available for the period(s) of residence can be valuable and transferring some of the ownership to someone who did not live at the property can be costly.

      Of course, if you don't plan to sell the property for a while, you may decide that future CGT regimes are not predictable.
      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


        #4
        Thanks for the replies. We both lived there for nearly 4 years although she wasn't put on the deeds until we moved, does this effect the cgt?

        We will most likely take professional advice as you suggest, although its nice to be clued up :-). If we was to keep the default 50-50 split do the losses have to be split 50-50. As I've already personally paid for £300 in repairs and I pay the insurance etc. Does that have to be split 50-50 regardless that I personally paid it all. Again though its from a joint account we made specifically for the flat rental! I can see this joint account being an issue ha. Thanks in advance.

        Comment


          #5
          Our rental income is paid into a joint account. Our accountant just divides all income and outgoings by the appropriate amount. It pays to have an accountant do your tax returns.

          Comment


            #6
            Starting to think it may be a good idea to get an accountant, even if just for the first time! Cheers.

            Comment

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