Allocation of rental income husband and wife.

Allocation of rental income husband and wife.

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My husband and wife clients jointly own various properties . The rent is paid into a joint account.

They would benefit by making an election for wife to receive all the rental income.

I would appreciate any advice re time limits for making such an election and should the wife open a new bank account.

thank you for any response.

Replies (10)

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By JazzySasha
03rd Jul 2014 15:29

Election?
My understanding is that the rental profits/losses are shared equally between husband and wife in relation to jointly owned properties, or, the share of profits/losses follows the beneficial ownership.

See PIM1030
"However, where the joint owners are husband and wife, or civil partners, profits and losses are treated as arising to them in equal shares unless:

both entitlement to the income and the property are in unequal shares, and
both spouses, or civil partners, ask their respective tax offices for their share of profits and losses to match the share each holds in the property."

Hope the above is of assistance.

Thanks (1)
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By MDK45
03rd Jul 2014 16:03

I thought it was possible from previous posts but there are some hoops to jump through. I am interested in this now as have a married couple letting out quite a few properties but in different marginal tax bands. Can someone point me to the old post explaining how to do this?

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By JazzySasha
03rd Jul 2014 16:49

Previous post
The previous post to which you may be referring is here https://www.accountingweb.co.uk/anyanswers/question/husband-taxed-soley-...
But as you will see, the "election" to which you refer only follows actual beneficial ownership where that is not 50:50. You cannot "elect" to split the profits between husband and wife simply to achieve the best tax outcome, not without also changing the underlying beneficial ownership where necessary.

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Jennifer Adams
By Jennifer Adams
03rd Jul 2014 17:48

Its actual ownership that is important...

Jazzy is right - its actual ownership that is important. See here from my book '101 Property Tax Secrets'  to be published shortly (she says showing off!!)

By default, rental profit from property jointly owned by spouses/civil partners is taxed 50:50 irrespective of the underlying respective proportion of actual ownership. (This does not apply to property held within a partnership business proper).

However, if it would be more income tax efficient for the split of profit to be different, then the profit may be divided according to actual ownership once HMRC has been notified. A couple may also change the underlying ownership to suit, but note that such unequal ownership can be achieved only as ‘tenants in common’.

 

 

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Replying to Duggimon:
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By BClayton
14th Jul 2014 11:01

Ownership changes

So could the ownership split be changed by drawing up a Deed of Variation for tenants in common? I have a similar case where married couple would benefit from the rental income going to the husband and this is what their financial advisor has recommended.

 

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By MDK45
04th Jul 2014 07:13

So basically, it can't be done? Doesn't that run contrary to the arctic systems ruling or has that moved on?

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By Steve Holloway
04th Jul 2014 08:22

Arctic Systems?

Did Arctic not precisely underline the point described above i.e. that H & W were able to orgianise their tax affairs in a beneficial way? If either H or W make an absolute gift of both income and capital to the other then a settlement is not deemed to arise and the income will be taxed on the recipient. So, in your case provided H does actually transfer a legal right to the capital of the property then W is free to be taxed on the income ... or is that not what he wants to do for some reason?!

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By tonyh
04th Jul 2014 15:21

Thank you for all comments.

The clients are both pensioners. They are tenants in common. Husband has a small private pension + State wife gets the princely sum of £2485 per annum from State Retirement pension.

It is a shame to see two people with a total income of £23k paying £1448 income tax.

Rental income is £3707 each.

 

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By JOANP
14th Jul 2014 12:12

Form 17

Whatever you do, you will also need to complete a form 17, now available online on HMR&C's website at http://search.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=TS9D3da9t7I&formId=5159#forms  It can't be completed retrospectively either. 

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By Marion Hayes
14th Jul 2014 14:15

Transferable llowances?

If you start transferring ownerships be wary of the cost. From April 15 there will be a transferanle portion of a perswonal allowance so you may not benefit much?

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