Profit sharing for property income

[mknight]

My wife and I jointly own property which we rent out. Last year we apportioned the profit 50/50 when we completed our individual tax returns.

Since then, my wife has left her normal employment and, as such, the rental income is her only source of income.

Prior to completing our next return, are we allowed to change the profit sharing ratio without falling foul of any rules? (Of course, we can agree this in a document if necessary.)

We are thinking of changing the split to 99%/1% (or even 100/0 if allowed). This will have the effect of reducing my income - will this be seen as tax evasion or is it perfectly allowable avoidance?

Many thanks in advance.

[Simon Sweetman]

You can change the split, but you must at the same time change the ratios in which you own the property : the allocation of the income must be the same as the underlying ownership. So if your wife is to take 99% of the profits she must own 99% of the property. If you are currently joint tenants, you will need to change to being tenants in common in order to hold unequal shares.

simon.sweetman@btinternet.com

[Instinctive]

Changing the ownership ratio is easily, and cheaply, done by a Deed of Trust.

If the circumstances change in the future, it is possible to draw up a new Deed of Trust to reflect the changed ownership.

It is recommended that any such Deed is drawn up by a solicitor, although, as far as I am aware, this is not a legal requirement.

Ramnik

[Lambs]

M,

Note that it will still be necessary to use HM Revenue & Customs' Form 17, to notify them of the change in the split in income. You will see from the Form that the change will take effect (for tax purposes) from the date on which the Form is signed, provided it is submitted to HMRC within 60 days of its signature.

See

http://www.hmrc.gov.uk/forms/form17.pdf

for further information.

Regards,

Lambs