Property Partnership Between Spouses

by Readers Question

9:51 AM, 4th September 2017
About A year ago

Property Partnership Between Spouses

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Property Partnership Between Spouses

I have read with interest the articles on forming a property partnership as a way of allocating profit to a partner on a lower tax band. I have also purchased and read the “Guide to Forming a Property Partnership” which was very helpful and I think this would suit us. My husband and I jointly own and rent out 2 properties in Scotland. He works and pays tax at the higher rate whereas I am not employed. When we come to fill in our tax forms we have to pay a large amount of tax on my husbands share of the income.

Since we live in Scotland it does not seem possible to use a Deed of Trust to move most of the ownership into my name. It seems that here we have to do normal conveyancing and that involves mortgages so is not really an option for us.

The partnership option does look like a way forward. I looked at the form SA400 and there are a couple of questions that I would like advice on.

1. “What is the nature of the business”. What would other users suggest I put in here to have the best likelihood of it being accepted as a business by HMRC? I was thinking of putting “Property rental including management, maintenance and tenant sourcing”. Does anyone have any better suggestions?

2. What date do I put in the “When did the business commence” box? According to the form it looks like the earliest date I can enter is 6th April 2016, as it says I have to register by 5th October in the business’s second tax year or there could be a penalty. We have been doing the work for 4 years. Would this be the best date to put in?

Also, while reading about this on various sites I read somewhere that partnerships between married couples still have to allocate the profit either 50-50 or in the actual ownership share whereas non-married partnerships can allocate profits as they wish. Is this correct? If it is then the partnership would not help us.

I am hoping that there are others out there who have already taken this step and can provide some insight for me.

Thanks

Angela



Comments

Mark Alexander

9:57 AM, 4th September 2017
About A year ago

Hello Angela

1) Nature of Business = Property Rental Business

2) Start date - in your case, 6th April 2016 seems to be a logical date, especially if you haven't filed your 2016/17 tax returns yet. Many people buy their first rental properties as joint investments initially and then subsequently decide to make a business out of lettings, hence there is nothing unusual in this regard.

I also recommend you to read my article regarding "BUSINESS Hallmarks" - see link below.

https://www.property118.com/landlord-business-hallmarks/

Mark Alexander

12:23 PM, 4th September 2017
About A year ago

PS - you can split legal and beneficial ownership in Scotland, but since you already jointly own the properties and are running a rental property business there is no need to do this in your particular case.

Angela Wilcox

14:55 PM, 13th September 2017
About A year ago

Thank you Mark for your comments. I have registered the partnership and got a UTR for it. In looking at the partnership tax return I have to declare the sources of income. I obviously tick the box " receive any rent from land and property" but do I tick the box "carry on a trade or profession"? If I don't how do I support the claim that this is not simply an investment?

Mark Alexander

15:51 PM, 13th September 2017
About A year ago

Reply to the comment left by Angela Wilcox at 13/09/2017 - 14:55
Hi Angela

It would be quite unusual for a property investment business to also be carry on a trade or professional but not completely impossible.

Please read the linked article below and that should help you to answer the question.

https://ion.icaew.com/taxfaculty/b/weblog/posts/propertylettingandnationalinsurance

I also suggest you read HMRC Manual PIM1030 - see link below

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm33110


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