One of the most common tax topics we are asked about at APARI is jointly-owned property.
Jointly-owned property is where a property, rental or otherwise, is owned by more than one person. In tax terms, the fact that the property is part-owned by more than one person means that the property income and expenditure is split between the owners by the ratio of ownership for that property. So, for example, if one person owns 75% of the property while the other owns 25%, income and expenses are split 75/25 between the two owners.
Jointly-owned property is most often seen with married couples, with each person contributing to the mortgage, but friends and colleagues also buy properties together for a variety of reasons.
What does this mean for your tax return?
If you are a part-owner of property, rental or otherwise, then you will have to split all of the rental income and expenditure from the property between you and the other owner(s), according to the amount you own, with each of you submitting a separate tax return.
How will jointly-owned property work with MTD?
The treatment with jointly-owned properties is the same when it comes to MTD ‒ relevant income and expense transactions still need to be split in correlation with the ownership ratio. This can be daunting to manage on an ongoing basis, especially if there are a large number of transactions!
With APARI, we have made a point to focus on making the process of allocating split transactions in the case of jointly-owned property easier for our landlords. We understand that this is currently an admin heavy princess and we want to make your lives easier.
Not only have we written some help pages on how to deal with the transactions within the current system, but we are also developing the software further to automate the process.
We are really interested in your feedback: Are we doing enough? How easy or hard do you find the process? And to what extent does it affect your decision making process when choosing MTD software?
If you jointly-own property, it would mean a great deal to us if you could spare 5 minutes to complete our short survey and help us enhance our MTD tax software.
Why jointly-own a property?
There are a number of benefits to owning a property with someone else. Sometimes it can be as simple as a cost shared is a cost halved ‒ buying property with someone can make it more cost effective!
There are also tax implications: by sharing the income you also share the tax burden. This can be especially useful with a married couple or civil partnership. By sharing the property income between the couple, each person can take advantage of lower tax brackets.
Say, for example, one of the owners is just falling into a higher rate tax bracket, splitting the property ownership means splitting the income, dropping them back into a lower tax bracket. The other partner can then utilise their lower rate tax bracket and tax-free entitlement, reducing the overall tax owed. This is known as the marriage allowance.
Please be aware that you cannot change the ownership split of a property to your tax advantage. However, you can transfer the portion of ownership to another person as a tax planning policy when considering your future capital gains tax. This can get a bit technical and needs to be done properly, so we would recommend speaking to a qualified tax adviser if this is something you are considering.
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