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Where Taxpayers and Advisers Meet

Split rental income and property repairs 90:10, 10:90

Scatts570
Posts:2
Joined:Wed Jan 12, 2022 1:48 pm
Split rental income and property repairs 90:10, 10:90

Postby Scatts570 » Wed Jan 12, 2022 1:56 pm

I am in an unmarried relationship with my partner and we have a property owned 50:50 that we rent out. I am a high rate tax payer and my partner is a low rate tax payer.

Can we change the income so that my partner receives 90% of the rental income and thereby reduce my tax burden? HMRC section 1030 seems to support this.

If we can, how do we formalise this? or do we need to formalise?

Also would it be possible for me to cover 90% of costs and therefore improve my tax situation further. (I do also have my own house that I rent out)

Hopefully that makes sense.

topgearfan2008
Posts:4
Joined:Wed Jan 12, 2022 12:24 pm

Re: Split rental income and property repairs 90:10, 10:90

Postby topgearfan2008 » Wed Jan 12, 2022 10:11 pm

Unfortunately that is not possible. Especially to pick and choose what share of the property you essentially lay blame to depending on if its income or expenditure!

Please see the below, however it is somewhat more permanent, and may affect your situation in the future..


Dividing income from property

At the moment, HMRC appear to be paying close attention to the way that rental income is divided between spouses.

The rules for splitting rental income have not changed for many years. In general, where rent is received from an asset held jointly by individuals who are married to each other and living together, the income is shared equally. Even if the one partner has contributed 90% of the capital to buy the property, their spouse is deemed to receive half the income. This rule works well for many couples.

But what if the couple wish to change how the income is allocated so that the spouse with little other income gets more? It is possible to change the way it is split provided that:

the couple make a joint declaration, and
they are ‘beneficially entitled’ to unequal shares in the property.
A joint declaration is made using ‘Form 17‘. Evidence to support the declaration that beneficial interests in the property are unequal, such as a declaration or deed, is required.
https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/SpecPersTax_iForms/1.0/17&template=17.xdp

Lambs
Posts:1579
Joined:Wed Aug 06, 2008 3:15 pm

Re: Split rental income and property repairs 90:10, 10:90

Postby Lambs » Thu Jan 13, 2022 12:33 am

Form 17 approach applies ONLY if the property is held in joint names between spouses / civil partners. The querist is not married to his/her 'other half'.

Regards,

Lambs

Scatts570
Posts:2
Joined:Wed Jan 12, 2022 1:48 pm

Re: Split rental income and property repairs 90:10, 10:90

Postby Scatts570 » Thu Jan 13, 2022 12:28 pm

Thanks for the advice.

My position wasn’t necessarily about changing things to avoid tax, but to reflect what actually happens. My partner is voluntarily on low income, so rental income supports her and when there’s repair bills (just got a boiler replacement going through!!) then I foot the bill. But what you’re saying is that unfortunately there’s no provision for that. All income and expenditure is as per the initial investment ratio.

maths
Posts:8425
Joined:Wed Aug 06, 2008 3:25 pm

Re: Split rental income and property repairs 90:10, 10:90

Postby maths » Thu Jan 13, 2022 6:42 pm

Co-habitees can agree to split rental income however they choose and irrespective of how the property was initially purchased.

For example, X and Y buy a property for 100 with X contributing 70 and Y 30. In the absence of any agreement X and Y will be liable to income tax on a split of 70/30. However, X and Y could agree to split such income, say, 90/10; 80/20; 60/40.

However, if the property is sold, despite the agreement, capital gains would be in line with a 70/30 split.

Lambs
Posts:1579
Joined:Wed Aug 06, 2008 3:15 pm

Re: Split rental income and property repairs 90:10, 10:90

Postby Lambs » Thu Jan 13, 2022 7:48 pm

But the implication for co-habitees is that HMRC **MAY** be able to invoke the Settlements anti-avoidance legislation to say that, for tax purposes, the person 'giving away' some of his or her right to income (generally of course to the lower-taxed party) should remain taxable on the income 'given away', effectively negating the intended overall tax saving.

While the legislation specifically attacks gifts of income to spouses, civil partners and to minor children, it is not necessarily so limited. Outside of those specific scenarios, giving up some or all of your income to friends, siblings, etc., is fine, SO LONG AS HMRC cannot 'prove' that you (the 'donor') are still benefitting from the income given away.

But living under one roof, as a single household? I think there's a risk that HMRC could make something stick.

I have no doubt Maths will be familiar with the regime but for the sake of completeness, see TSEM4200

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4200

Merry Christmas, Mr. M.

VB,

Lambs

maths
Posts:8425
Joined:Wed Aug 06, 2008 3:25 pm

Re: Split rental income and property repairs 90:10, 10:90

Postby maths » Fri Jan 14, 2022 6:41 pm

My experience is that HMRC do not tend to take the "settlement" point which Lambs validly makes unless HMRC have prima facie evidence that the settlor/donor enjoys any part of the income which arises to the donee in the future. So, inter alia, if the rental income is, post any transfer, paid into a joint account of donor/donee then the settlement provisions would apply. Thus, the rental income of each person should be paid into separate accounts.

Lambs, thank you for your good wishes which are reciprocated. Hope we both make "loads off money" in 2022 !


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