Rental Property income split

Rental Property income split

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This question has probably been answered before but little confused so please forgive me

If wife and husband own 50%:50% of a Rental property

Can the wife who is a lower tax payer receive 99% of the rental income through a declaration of trust and submitting a form 17 to HMRC ?   

Husband is a high rate tax payer

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By King_Maker
29th Dec 2014 12:10

Yes, if husband is happy to give away 49% of the property to his wife. Ideally, the rent should be paid into her sole account.

SDLT needs reviewing, if there is a mortgage involved.

PPR relief for CGT could be compromised, if the property was ever their main residence. 

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By JimLittle
30th Dec 2014 10:02

Not sure

I thought the legal ownership needed to be unequal in the first place to change the beneficial ownership and hence split the rental income

A married couple cannot change the rental split unless they change the underlying ownership of the property.  They will always be deemed to be 50:50% share of the rental income.

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By King_Maker
30th Dec 2014 10:26

Legal ownership can never be unequal - only in Equity (beneficial ownership).

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Stepurhan
By stepurhan
30th Dec 2014 10:43

Legal v beneficial

Beneficial ownership is assumed to follow legal ownership in the absence of evidence to the contrary. Legal ownership of a joint property will be 50/50 by default. Beneficial ownership can be altered, as already suggested, by a trust deed. Beneficial ownership will be the basis of the split for tax purposes.

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By JimLittle
30th Dec 2014 10:46

confused

 

I am still not clear if a married couple can change the rental split via a declaration of trust and Form 17.  I seem to understand it is not possible unless the legal ownership changes.  They are unable to change the beneficial ownership.

For Tenants in common it seems much simplier to change the beneficial ownership

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Stepurhan
By stepurhan
30th Dec 2014 11:06

What is still not clear?

I think it has been made pretty clear that beneficial ownership, not legal ownership determines the tax treatment. I think it has also been made pretty clear that beneficial ownership can be changed by a declaration of trust. Form 17 is just a means of informing HMRC that the beneficial ownership is not 50/50.

Tenants in common is to do with living in a property, not letting it out. I think you are getting confused with property owned jointly by unmarried individuals (whether a couple or not). They can agree to share of rental income as they see fit, regardless of how the ownership of the property is split.

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By nick farrow
30th Dec 2014 11:42

tic


my understanding was that in order for 50:50 joint ownership to be adjusted it can only be  achieved by severing the joint tenancy and enabling the legal ownership to adjusted so that H&W hold the property as tenants in common which in turn allows differing proportions of ownership -  the income split must follow the capital split
 

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Replying to Tax Dragon:
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By JimLittle
30th Dec 2014 11:50

my understanding too

nick farrow wrote:


my understanding was that in order for 50:50 joint ownership to be adjusted it can only be  achieved by severing the joint tenancy and enabling the legal ownership to adjusted so that H&W hold the property as tenants in common which in turn allows differing proportions of ownership -  the income split must follow the capital split
 

Exactly my understanding and thats what I have also read hence the confusion.

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By Justin Bryant
30th Dec 2014 11:58

Assuming
It's currently owned as joint tenants in equity, then doing a 99/1 DoT will sever that joint tenancy and create a 99/1 tenancy in common. So the answer is "yes", assuming the Form 17 requirements are adhered to and there should be no SDLT even if there is a large mortgage if you do this with an SDLT specialist.

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By King_Maker
30th Dec 2014 12:08

The joint tenancy can only be severed in Equity.

@JimLittle - your original post sets out the position correctly for married couples (and Civil Partners). There is also a 60 day Time Limit for filing of Form 17 with HMRC.

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