A joint investment/partnership exists when two or more persons own property that is let out. The individual partners are taxed on their share of the annual profits or gains made – not on their drawings.
Non-tax reasons for buying as joint investors/ partnership:
• You wish to share the investment.
• You wish to share the control and running of the properties.
• On death you wish the property to be transferred automatically to the partner who may not be your next of kin.
• You are not able to fund the investment on your own.
Tax reasons for buying as joint investors/ partnership:
• You are a higher or additional rate taxpayer and your partner(s) is a basic rate or a non-taxpayer(s). Correct tax planning can enable a reduction of the total tax bill.
Example:
Joanne and Robert own a portfolio of rental properties 50:50.
Joanne is a basic rate taxpayer but Robert is a 45% additional rate taxpayer. Total net rental profit is £750 per month i.e. £9,000 per year = £4,500 each.
Joanne: Tax liability of £900 (£4,500 @20%).
Robert: Tax liability of £2,025 (£4,500 @ 45%).
If Robert owned the properties as a sole investor the tax liability would be £4,050; by owning the properties jointly with Joanne there is a tax saving of £1,125.
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