Can landlords spread rental profits between spouses and minimise tax?

Can landlords spread rental profits between spouses and minimise tax?

14:33 PM, 28th January 2013, About 11 years ago 20

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Clever ways for landlords to use up two tax allowancesOne of our readers has sent in the following email (dark blue text below) and is looking for ideas that other landlords have used to minimise tax by spreading rental profits between spouses. 

Mark Alexander has shared a few thoughts but would like to point out that he’s not a qualified tax adviser. Therefore, we have also included a contact form for you to get in touch with the accountants Mark uses. He’s also invited their landlord tax expert, Neil Barlow, to comment.

“I am just buying another Buy-to-Let property and this will push me into the higher rate tax area.  I understand I can create a declaration of trust document which will assign the beneficial interest of a property’s income fully over to my wife.  She will now need to serve a tax return annually, but she will still be below the 40% tax rate even with her job income.

The question which I am not sure about is whether the tenancy agreement has to be in her name and the rent paid to her bank account.  It would be easier for admin purposes for me to have to deal with all these issues as I do this already.  Would this mean that I would now have to act as an agent for my wife to get round this issue?”

Mark Alexander commented as follows

I can think of quite a few things that you could look into but I do urge you to take professional advice. If you would like me to introduce you to the accountancy firm I use personally please complete the form at the bottom of this article. Other landlords may well leave suggestions below the article in the comments section of this thread. Here’s my suggestions though:

  1. If you are buying for cash why not buy the property in your wifes name? You can easily switch it back to joint names at the point of selling it on in order to benefit from both CGT allowances if necessary. I know a lot of men worry about what would happen in terms of divorce in these scenarios but having been through that I can assure you that it changes nothing.
  2. Why not buy the property in joint names and apportion the the income as best suits your tax affairs?
  3. Have you considered setting up your wife as a property manager? It’s a none regulated business and very easy to set up. You wife could then invoice whatever share of the profits were most tax advantageous. So long as you don’t exceed that VAT threshold in terms of the amounts invoiced that could be incredibly efficient as you would be converting unearned income to earned income too 🙂

Accountants Introduction Request


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6:48 AM, 29th January 2013, About 11 years ago

It's income tax, so if she receives the income then her tax situation applies. I don't think you can keep the income yourself and apply her situation to it, but you are married so what you do with it once you have received and paid tax on it is between the two of you. Have it paid into a joint account, problem solved. I had the opposite situation where I was taking the income on a jointly owned flat, possibly not the most tax efficient but easier for admin as you say. I was advised by the tax office that as I was receiving the income, I didn't need to account for it in my husband's tax affairs. Of course she might want to keep it but that's for you to sort out 🙂 otherwise you'll have to bite the bullet and pay the higher tax rate.

I don't understand about acting as an agent for your wife, just fill in the tax return. The tenancy probably should be in her name for simplicity.

Alan Capper

8:58 AM, 29th January 2013, About 11 years ago

Sometimes stating the obvious seems foolish - but then the ONLY truly foolish statement is the one you DON'T make. So I presume, for Tax purposes, that you have a Trading Name and are not simply operating on your own. My understanding, from my Accountant (PLEASE seek advise into this yourself) is that as my wife and I trade/deal with property (on a Self-Employed basis) under a Trading Name, we can move rental profits/expenses between ourselves. The Trading Name is with respect to a Sole Trader or Partnership which incurs NO cost but affords us the Tax benefits associated with alternative streams of income.

In many ways my wife is like a "silent partner" as regards our property portfolio, so I deal with everything but rely on my Accountant for the Tax details. I find there is no need to "get round things" as there is sufficient help already in place.

Mary Latham

10:01 AM, 29th January 2013, About 11 years ago

Ahem Mr A it is not just MEN who have to worry about what will happen in a divorce or breakup. Successful women have the same issues!!!!!
I knew a couple who had joint property holdings that were all in the husbands name. Before he left her he mortgaged them up to the hilt. I don't know the detail but she came out with very little.
This is a very interesting warning

Property investors should watch out for a new tax trap inadvertently set up by solicitors and the Land Registry.

Lawyers are encouraging all joint property buyers to sign an express declaration of trust detailing their percentage ownership.

The form is then filed with the Land Registry as evidence if any dispute about joint ownership arises should the couple’s relationship break down.

The move is the result of two recent court cases involving unmarried couples arguing over money and property when their relationships ended.

The Law Society and Land Registry want solicitors to encourage buyers to sign the declaration.

However, property investors should know that the Land Registry database is linked to HM Revenue & Customs and the forms could end up triggering tax inquiries.

Follow me on Twitter@landlordtweets

Mark Alexander - Founder of Property118

12:09 PM, 29th January 2013, About 11 years ago

Hi Puzzler, the point about appointing the wife as agent was my suggestion. What we don't know is how many properties this landlord owns or how much profit is being made. However, let's assume it's 10 properties and each are returning a profit of £200 a month. That's £24,000 of profit per annum. If the wife manages the portfolio what's to stop her invoicing the full £24,000 a year as a management fee, thus reducing the profits and hence the tax on the portfolio to hubbie to zero?

Mark Alexander - Founder of Property118

15:18 PM, 29th January 2013, About 11 years ago

Hi Mary

The reader is a man, hence the gender references. Obviously my advice cuts both ways.

In the case you’ve mentioned I can’t see why the wife came away with very little. The remortgages obviously raised case. Was this spent? If so, that money would be treated by a judge as having come out of the mans share of the entitlement. Had the properties have been in joint names then the mortgages could not have happened without joint consent. Another way to protect against this would be to take advice from a good conveyancing solicitor who could register interests for husband and wife on all properties, regardless of who’s name they were owned in according to HM Land Registry. With the benefit of cautions, charging orders, restrictions or whatever they are called these days neither party can easily dupe the other if things are set up properly. For details of the conveyancer I’m using and referring landlords to now please see >>>

Neil Woodhead

22:42 PM, 29th January 2013, About 11 years ago

If the property is in joint names then the HMRC look on it as a partnership and the net income can be allocated to either party or both in any proportion.

Claudio Valentini

10:33 AM, 30th January 2013, About 11 years ago

Hello Mark, I made a very similar suggestion to my accountant - about invoicing for property management charges ( only difference was rather than my wife invoicing I suggested invoicing through a limited company Wevare Directors of ) I paraphrase my accountants reply 'Save you a very long complicated and expensive answer. Don't go there' I never got to find out why not. I assume that HMRC would view that I was having my cake and eating it - but are you suggesting that Mrs C could set upas a sole trader and invoice management charges...makes sense to me.

11:34 AM, 30th January 2013, About 11 years ago

Hi Mark. One of the properties i manage is owned by a couple who jointly bought a property in a 50/50 equal share, and the rent is paid into a joint bank account. When the accountant does the yearly accounts the rental income is split evenly between the two of them for tax purposes.

Mark Alexander - Founder of Property118

14:46 PM, 30th January 2013, About 11 years ago

Hi Claude, your accountant should be suggesting these things to you. Time to change perhaps?

Mark Alexander - Founder of Property118

15:47 PM, 30th January 2013, About 11 years ago

Hi Scotty, I don't see a problem with that if they both earn similar amounts as creativity is not necessary in those circumstances.

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