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Joint ownership exists where two or more persons own property that is let. The individuals are taxed on their share of the annual profits or gains made.

Individuals who purchase property jointly intending to rent for the long term are ‘joint investors’. Joint owners of property purchased with the intention to sell after restoration are likely to be in a ‘trading partnership’ and each be taxed as a self-employed ‘property dealer’.

The difference between owners who let jointly owned property and a partnership is that for a partnership to exist, there needs to be a degree of organisation similar to that required for an ordinary commercial business with a view to making a profit. A partnership agreement is therefore recommended.

Non-tax reasons for buying as joint investors:

• Sharing of the investment.
• Control and running of the properties is shared.
• Should the property be held as ‘joint tenants’ rather than ‘tenants in common’ then on death the property is transferred automatically to the other owner, who may not be one’s next of kin.
• Funding of the investment is not possible by one party alone.

Tax position: Correct tax planning can enable the reduction of the total tax liability. The letting profit is halved with each owner’s share of the profit being taxed at his or her respective marginal rate. The example shows the tax position should one owner be taxed at a higher rate than the other.

Example:
Joanne and Robert are married and own a portfolio of rental properties 50:50.

For the year 2014/15 Joanne is a basic rate taxpayer but Robert is a 45% additional rate taxpayer. Total net rental profit is £825 per month i.e. £9,900 per year = £4,950 each.

Joanne: Tax liability of £990 (£4,950 @20%).
Robert: Tax liability of £2,227.50 (£4,950 @ 45%).

If Robert owned the properties as a sole investor the tax liability would be £4,455; by owning the properties jointly with Joanne there is a tax saving of £1,237.50. (The saving could be even higher, should the property be solely in Joanne’s name.)

  This is a sample tip taken from our 136 page guide:

101 Ultimate Tax Strategies Revealed.

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