Can landlords spread rental profits between spouses and minimise tax?Make Text Bigger
One 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:
- 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.
- Why not buy the property in joint names and apportion the the income as best suits your tax affairs?
- 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 🙂
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