Buy to Let income - tenants in Common tax advantage query

[illfittin]

I am completing the purchase of a buy to let property with my wife. I am over the 40% tax threshold but my wife has no income. I wanted to check the legalities over making the purchase as tenants in common where I have 10% and my wife 90% so 90% of the rental income will be taxed to her at a lower tax band.

Is this okay?
Is it okay even though the rental income will be going into our joint account?

I have searched and searched google but the only advantages I read of with tenants in common is the inheritance tax advantages - there is no mention of advantages around income tax between couples so I wondered if I missed something as I thought this would be a pretty common approach.

(I have tried asking my accountant but they are away and I need a pretty prompt answer so thanks in advance for any advice)

[Billy Pilgrim]

I've no idea - but I would advise taking a CGT view of the situation too prior to jumping into anything

[ASB]

Suggest you read the schedule A booklet on property income available from HMRC.

[DimPrawn]

If it's a BTL, then after paying the mortgage interest, you are not likely to be making much profit, and so the taxable income is going to be pretty low.

[illfittin]

If it's a BTL, then after paying the mortgage interest, you are not likely to be making much profit, and so the taxable income is going to be pretty low.

Thanks - I am just wondering about when there is no mortgage in place. Will look for this schedule A booklet mentioned above now.....

If anyone knows about how you adjust the %ownership stakes aswell that would be useful. (say if we want a 90/10 split now but move it more equal later in life).

[Maslins]

Many people do what you suggest. No reason why you can't make it 99:1. You can also do this whilst still retaining a 50:50 split for CGT purposes (thus both gaining your ~£10k annual exemption).

You need to ensure the paperwork is done right for this. Presumably you have a solicitor appointed to deal with the purchase? Discuss it with them, as getting the paperwork right is more for legal experts than accountants.

[THEPUMA]

Bear in mind that even if ownership is 90:10, the income will be taxed 50:50 by default as you are married, unless you elect for it to be taxed on the actual ownership proportions. To do so, you would need to prepare a formal election.

I may be being slow but I'm not sure how Maslins is suggesting you retain 50:50 ownership but split income 90:10, unless you pay your wife a salary for administering the property. This would probably work but if the amounts are large, the NI cost may outweigh the benefit. Maslins, can you elaborate? I am probably being thick.

[DimPrawn]

Thanks - I am just wondering about when there is no mortgage in place. Will look for this schedule A booklet mentioned above now.....

If anyone knows about how you adjust the %ownership stakes aswell that would be useful. (say if we want a 90/10 split now but move it more equal later in life).

What sort of % return are you looking at based on 80% occupancy at market rates vs the capital?

Do you honestly think house prices are going upwards from here to make it a better bet than other investments?

[ASB]

Thanks - I am just wondering about when there is no mortgage in place. Will look for this schedule A booklet mentioned above now.....

If anyone knows about how you adjust the %ownership stakes aswell that would be useful. (say if we want a 90/10 split now but move it more equal later in life).

You can do it very simply by gifting it. Best to do it via a deed of trust. This does not involve land registry fees and doesn't have to be registered at the registry (I think). In any event there can always be implications, at the very least it's a gift with reservation so don't peg out within 7 years (though if you do it may or may not make any difference depending upon who the recipient is and where you are married to them at the time).

As THEPUMA says the rules for splitting the profit seem to be either joint shares or shares based on ownership. BUT the other part could of course charge for the work they do (and declare it on their tax return) in administering the tenancy etc - getting a little close to the wind though.

[Maslins]

Your solicitor should be able to do a declaration of trust to split the income arising from the asset, and capital into different percentages.

Then fill in HMRC form 17.