tax relief and split incomes

[MrRigsby]

Hi - newbie to being a landlord and also this forum but already picking up some good advice from the community so I'm glad to meet you guys. :)

A thread was going about splitting income for tax return. A 'supplementary' question I've got is: I pay 40% tax my wife is on 20%, is there any benefit in keeping the income and expenses in my name to get relief at 40% rather than 20? Particularly in this first year when it's been mostly expenses! Is there some sort of break point where it would be beneficial to start adjusting the percentage more over to my wife's side? :confused:

[Tax Accountant]

Hi - newbie to being a landlord and also this forum but already picking up some good advice from the community so I'm glad to meet you guys. :)

A thread was going about splitting income for tax return. A 'supplementary' question I've got is: I pay 40% tax my wife is on 20%, is there any benefit in keeping the income and expenses in my name to get relief at 40% rather than 20? Particularly in this first year when it's been mostly expenses! Is there some sort of break point where it would be beneficial to start adjusting the percentage more over to my wife's side? :confused:

I assume you are talking about income from land and property, ie lettings income.

I am not sure if you have correctly understood the principles involved here. If you keep the income and expenses in your name, the net profit will be charged to you at your tax rate of 40% rather than the 22% if it was kept in your wife's name.

If the expenses exceed the income in the first year, you have a loss which can only be carried forward and used to reduce later years' net profit from letting. Therefore, no purpose is served by having any of it in your name.

The only possible benefit of it being in your name (as well as that of your wife) would be for CGT purposes if and when it is sold.

Finally, you cannot just choose to yo-yo the net income between the spouses at will to suit your tax circumstances. The apportionment will be based on the beneficial ownership of the property between the joint owners at the relevant times as a matter of fact.

Ramnik

[MrRigsby]

Thanks for your reply Karongo. Still getting used to the terminology...:o

Can you explain to me - are the expenses deductible from the tax due or the gross amount of letting income? - this is where I thought the 40%/22% split would be useful, 22% means less tax due so more of a loss (negative number) when the expenses deducted.

Also I mis-understood Form 17. So it's not something you can fill in every year shifting the balance around? - but it does allow you to adjust the balance, doesn't it? - once only? :confused:

[Tax Accountant]

Thanks for your reply Karongo. Still getting used to the terminology...:o

Can you explain to me - are the expenses deductible from the tax due or the gross amount of letting income? - this is where I thought the 40%/22% split would be useful, 22% means less tax due so more of a loss (negative number) when the expenses deducted.

Also I mis-understood Form 17. So it's not something you can fill in every year shifting the balance around? - but it does allow you to adjust the balance, doesn't it? - once only? :confused:

Expenses are deducted from gross income to arrive at the net profit or loss. An example may make this clearer.

Gross Rents 5000
Less Expenses:
Buildings Insurance 300
Repairs 500
Safety Certificates 200
Loan Interest 2500

Total Expenses 3500

Net Lettings profit 1500

Shared between:

Husband (assuming owned equally) 750
Wife 750

Taxed on each according to their respective tax rates.

As to completion pf form 17, please read the form carefully. I believe it states that the apportionment should be declared on the basis of actual ownership of the property. Therefore, it should not reflect an apportionment to suit your tax rates. If necessary, you should see a solicitor and effect a trust deed to reflect that beneficial ownership is 99% to your wife and 1% to you (or any other apportionment) and then fill the form 17 accordingly.

If you should decide after say 5 years that the ownership proportion has changed, effect another trust deed and then fill another form 17 again accordingly.

You should then ensure that your self-assessment tax returns are completed in accordance with the declaration on form 17.

Ramnik

[MrRigsby]

Thanks for your answer Karongo and the example. I'll follow up the Form 17 advice too. :)
Best regards.

[Tax Accountant]

Thanks for your answer Karongo and the example. I'll follow up the Form 17 advice too. :)
Best regards.

You are welcome.

Ramnik