Rental income for married couple

Buy to let property under husbands sole name. Can rental income be split between married couple

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Hi. I have a client. Husband and wife who recently purchased a buy to let property. The mortgage and ownership is under the husbands name only. 

Can the rental income be split 50-50 between husband and wife even though the wife's name is not on the property or on the mortgage application?

 

it seems fair that she should receive at least part of the income as she manages the property and collects the rent in their joint bank account. 

 

Thanks 

Replies (16)

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By Accountant A
06th Nov 2016 21:15

"it seems fair that she should receive at least part of the income as she manages the property and collects the rent in their joint bank account. " If she is paid by him to manage the property, then he can claim a deduction for that cost (assuming it's W&E) and she will declare that as her income. I've never seen a situation where liability to tax was based on the account that income was paid into.

https://www.accountingweb.co.uk/search?search_api_views_fulltext=Rental+...

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By Ambra999
06th Nov 2016 22:10

Thanks for your response.

I agree that rental income shouldn't be taxed on the wife for the sole reason that she received income in a joint account but the couple are married and if it came to a divorce she would obviously be entitled to a share. Hence both own the asset and both should be entitled to the rental income surely?

Yes agreed the other way is to create a property management business for the wife but sharing the income would result in higher tax saving.

Thanks.

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Replying to Ambra999:
Stepurhan
By stepurhan
10th Nov 2016 10:49

Ambra999 wrote:
I agree that rental income shouldn't be taxed on the wife for the sole reason that she received income in a joint account but the couple are married and if it came to a divorce she would obviously be entitled to a share.

She would not automatically be entitled to a share on divorce. Divorce lawyers would have a lot less work if split of assets was automatic in this way.

To be entitled to a share, she actually has to have a share (as already noted, trust deed is the simplest way to achieve this).

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By Tim Vane
07th Nov 2016 01:22

So your argument is: He owns the asset. He is married to her. Therefore they both own the asset. Good luck with that.

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By possep
07th Nov 2016 09:17

Short answer, No.

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By nick farrow
07th Nov 2016 10:12

for H&W rental income split must reflect capital ownership as evidenced by the Deed of Trust and Form 17 (signed by both H&W)

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Portia profile image
By Portia Nina Levin
07th Nov 2016 10:43

It seems some of the membership have woken up with their grumpy heads on this morning, which I put down to a gin deficiency.

Yes. It is perfectly possible for the wife to have a share of the income.

All you need to do is get them to sign a deed of trust saying that whilst the husband is the legal owner he holds it (and has always held it) for the two of them as joint beneficial owners in the proportions H%:W%.

Then the wife can have and be taxed on W% of the income.

Form 17 will not be necessary since the property is not held in joint names.

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Replying to Portia Nina Levin:
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By sirp2000
07th Nov 2016 12:07

Well I am happy because I drank lots of gin yesterday and I agree with Portia.

However, I have been told that if W% of the mortgage exceeds £40,000, then at least 3% SDLT will be due on W% on the signing of the deed of trust, assuming that the couple own their home.

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Replying to Portia Nina Levin:
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By sirp2000
07th Nov 2016 12:09

.

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Replying to Portia Nina Levin:
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By Ambra999
07th Nov 2016 16:12

Thank you Portio for your very kind response

Yes, I didn't expect the floating ego heads to be up so bright and early !

I considered the deed of trust but as there is a mortgage involved this would involve a stamp duty calculation which will prove costly.

I guess the only other alternative for the wife to setup as SE and start up a property management company. Are there any pitfalls I need to be aware of - as long as it;s a legitimate business I do not see any

thanks

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By N Reynolds
09th Nov 2016 11:45

I don't know the facts but is the taxpayer able to replace the borrowing secured on the rental property, even for a short while, with borrowings that are not secured on the rental property or simply repay it?
Once the gift is made the spouses could jointly borrow secured on the rental property.

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Portia profile image
By Portia Nina Levin
09th Nov 2016 12:16

If it is the case that the husband has always held the property (remember it was "a recent purchase") on trust for himself and his wife, but this is only now being documented, there will not be any further SDLT (beyond what was paid when the property was acquired). This is not hard.

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Replying to Portia Nina Levin:
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By cwatkin
10th Nov 2016 10:18

I would have thought that any transfer of a share of beneficial ownership will require the lender's consent.

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By nathluthra
09th Nov 2016 12:45

Nina has hit on the nail, the answer is the Trust Deed,
if properly drawn via solicitors, this should work.

Vishwa

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By nathluthra
09th Nov 2016 12:45

Nina has hit on the nail, the answer is the Trust Deed,
if properly drawn via solicitors, this should work.

Vishwa

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By cfield
11th Nov 2016 18:58

Wouldn't it be easier for the wife to invoice the husband for the work she does? It would give them a lot more flexibility in splitting the profits. NI might be an issue but for just one property the profits would probably be below the NI limit.

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