Shared Ownership of Rental Property and Tax

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Buy to let properties: Can you save some tax by changing the shares of ownership?

Notwithstanding the changes in taxation and relief available to landlords, many married couples and civil partners still consider investing in property as a good long term investment providing good rental income and just as importantly good capital growth.

But no-one likes paying tax and certainly not more tax than they need to.

The purpose of this short article is to explain to married couples who already have a Buy to Let property or are thinking of buying a Buy to Let property the basis on which they pay tax and how tax might be saved.

Income Tax when you rent out a property – Married Couples or Civil Partners

The Starting Point:
There are special tax rules for jointly-owned Buy to Let properties for married couples and civil partners who live together and those tax rules say that the income from jointly owned Buy to Let properties must be split and taxed in equal shares (50:50).
Generally, that is how title to Property is taken for Married Couples and Civil Partners and so it follows on from that that this is how you would expect to be taxed on the income.
However, it may be that one of you is a non-tax payer or a high tax payer in which case you might be able to make a tax saving if that rental income could be spit in unequal shares.

Is that possible?

It is. But you will need to own the property in unequal shares and will need to declare that and satisfy HMRC of this and as part of that process you will ultimately need to complete and submit to HMRC a Form 17.

What do you need to do?

Step 1: Take the advice of an accountant
The first thing we would recommend you to do is to go and take the advice of an accountant.
The accountant will be able to provide you with the advice you need to decide whether or not changing the ownership of the property into unequal shares will result in a tax saving for you and perhaps also give you an idea of the most advantageous split in shares.
After all, there is no point in changing the ownership shares if it does not achieve the goal of saving on tax.

Step 2: See you solicitor
Once you have the advice of the accountant and established that splitting the ownership into unequal shares is going to work for you, the next step would be to arrange to go to see your solicitor.
Your solicitor will then be able to prepare the Disposition (the deed that transfers ownership) for you to amend the present title to the preferred shares of ownership. That Disposition once signed by you will then be registered with Registers of Scotland who will issue the amended title sheet (the title) showing the change in the split of ownership. That title sheet will be the evidence you can then send to HMRC along with the completed Form 17

Step 3: Notify HMRC
As mentioned above, to overcome the assumption that you will be taxed on a 50:50 basis, you will need to complete and submit the Form 17 to HMRC and send them a copy of the updated title sheet to satisfy HMRC that you do indeed own the property in unequal shares.

Information available from HMRC

As always, the HMRC website gives excellent and easy to understand guidance and case studies so here is a link to the guidance page for you to visit.

 

And remember, at Cameron Stephen and Co. solicitors and estate agents Edinburgh, we’re here to help you. If this is something you might be interested in finding out more about or if we can help putting you in touch with an accountant or assist you with the transfer of title, then please contact Cameron or Fiona, or give us a call on 0131 555 1234.

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