Married couples who are in different income tax bands are being urged to look at how they split the profits of rental properties they own together. Solicitors from legal firm Smith & Williamson, which has a London base and offices throughout the UK, say HMRC is reviewing cases where buy-to-lets are owned jointly by a husband and wife but the rental profits are not split equally between them.
The legal experts say the law clearly states the rules that must be followed by couples declaring rental profits, but there are steps that owners can take to reduce their tax.
“Married couples who own a buy-to-let where one partner is a higher rate taxpayer can shift the rent profit so a larger proportion is attributed to the lower rate tax payer,” a spokesman explained.
“But this must be done legally.”
Married partners who own a rental property share the profits 50:50 by default, irrespective of the actual beneficial ownership ratio. This is known as “joint tenant” ownership.
This can be changed if the property is transferred to “tenants in common” ownership and there is evidence to support the claim for unequal beneficial ownerships, such as a declaration of trust.
This evidence, submitted to HMRC on a form 17, can be given at any time so long as it aligns with the factual ownership position. The declaration must show the beneficial interest in the income covered and the property which generates the income. It must be signed and dated and received by HMRC within 60 days of the date of signing.
It will then be effective as of the date of signing and couples can then account for the profits of their rental property according to the new ratio they have set. This ratio can be specified by the partners to make the most of lower tax rates, reducing their tax burden. In some circumstances, depending on tax bands and rental incomes, it can save hundreds or even thousands of pounds a year.