The rental profit or loss incurred from a property held jointly (or held within a partnership business proper) need not be allocated in the same proportion as the underlying ownership. The owners can agree a different split as they see fit, the proportion referring to profits and losses only and not necessarily to the underlying proportion of ownership. Further information and calculations can be found in HMRC's Property Income Manual Section 1030.
Profit Allocation – Calculation
The purchase deed of 54 Dorchester Place shows that the property ownership is split 90:10 between John and his partner, Jane. For the tax year 2016/17 the net rental profit is £14,200 per year. John is a 40% higher rate taxpayer whilst Jane is a student with no income other than her share of the profit.
John’s annual tax bill is £5,112 on his 90% share (£14,200 x 90% @ 40% = £5,112); Jane has no tax to pay on her 10% share (£14,200 x 10% = £1,420) as this amount is less than the personal allowance.
Joint net amount remaining after tax = £14,200 – £5,112 = £9,088.
It would be more beneficial for the 90:10 split to be in Jane’s favour as this would mean a tax bill for John of £568 (£14,200 x 10% @ 40% = £568) and nil for Jane.
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