Beneficial interest in common on rental property

[Stephen]

My wife and I jointly own 2 flats which we bought in 1999 and have rented out ever since. My wife gave up work 3 years ago (to look after the kids) and has no other income apart from the £8000 pa rental income (after expenses) which we declare on a 50:50 split.

In order to fully utilise her personal allowance and lower tax bands I understand that it is possible to change the property ownership to beneficial ownership in common instead of joint ownership (say 90% share to her) and then make the declaration on Form 17.

Is this acceptable to the tax office and what paper work is involved with changing to beneficial ownership in common ?

Both rental properties have a buy-to-let mortgage on them. If necessary, we have enough equity in our home to remortgage, redeem the buy-to-let mortgages and own the flats outright (on the assumption that the flat related mortgage interest would continue to be an allowable expense).

Rent and outgoings go through her bank account.

[accountant@uktaxshop]

Re Beneficial ownership - yes you can make a declaration, but only if this is a matter of fact.

I donÂ’t claim to be an expert in this area, but given the other regular contributors donÂ’t seem to be around I shall try to explain.

The declaration will depend on the nature of your ownership. If you are "tenants in common" and have separable shares in the property, you may be able claim the splits you suggest, if these splits are the ones you want to claim you may be in business. However most property is held as "joint tenants" meaning you are both entitled to all the income and capital, which means you cant make the declaration.

So the answer is probably not at this time. I can put you in touch with someone who can help you more on this if required, as I say not something I deal with on a regular basis.

However you do have other options - ie transfer the asset wholly into your wifeÂ’s name, or one of them, so your wife is holding 75% of the total (100% + 50% / 2).

This wouldn’t raise and stamp duty issues given you can re-mortgage on your existing property. This would however mean you lose one of the personal capital allowance limits of £7,900 when you come to sell, so it isn’t black and white.

Regarding the funding, the interest on a loan to buy the property, including a remortgage is allowable against your rent, although you may have an interesting time trying to prove it if it is part of your main mortgage. If you can set up a separate account secured on your property this may be slightly easier, especially if you make regular overpayments etc

If you would like some more detailed advice, please let me know.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436