Splitting Rental Income Between Spouses on first BTL

Splitting Rental Income Between Spouses on first BTL

16:22 PM, 15th March 2018, About 5 years ago 8

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My wife and I are about to invest in our first buy-to-let, and we want to make sure we get all our ducks in a row and maximise our tax liability.

I work part time, earning less than my annual income tax allowance; my wife is a 40% tax-payer. We had a meeting with a local accountant today, but she seemed to know very little about property tax, deductibles, credits etc.

I’d appreciate if someone could point out any glaring errors in my plan, or point out pitfalls:

We intend to buy a property as tenants-in-common. Then we will get a Declaration of Trust drawn up by a solicitor and submit it to HMRC along with Form 17 stating that I will have beneficial ownership of 99% of the property, and my wife will have 1%. When it comes to doing our tax returns at the end of the year, I will declare 99% of the rental income and pay tax accordingly, my wife doing the same for 1%.

Is that right? Will there be any other costs involved in transfer of beneficial ownership, such as SDLT?

Do I need an accountant?



Neil Patterson

16:26 PM, 15th March 2018, About 5 years ago

Hi Nick,

Sounds like a good plan to me unless you are planning to buy any more, your income increases, or with mortgages Section 24 pushes you into being a high rate tax payer.

If any of the above are possible I would strongly consider purchasing in the name of a limited company as about 80% of new BTL purchases are now.

A good accountant will nearly always save you what they cost if not more so that is a bit of a no brainer for me.

Please see our tax planning page >> https://www.property118.com/tax/

Simon Coppen

20:27 PM, 15th March 2018, About 5 years ago

If you want to maximise your tax liability you need to swap over your beneficial ownership percentages. However, if you want to minimise it, as Neil says, your plan sounds good!
I personally have both our properties fully in my wife's name (I keep meaning to brush up on my CGT, so can't be sure what's best long term). I do her tax return for her and prefer not to pay for an accountant (there's no savings they could possibly make!). If you've only got one property and are happy to use a spreadsheet or calculator for 5 minutes then I've never seen the need for an accountant. Online tax returns are easy enough too, nothing that can't be done in a lunch break. However, I appreciate other people's tax situations can be far more complicated, in which case if you're not confident then play it safe and get one...

Simon M

10:40 AM, 16th March 2018, About 5 years ago

A declaration of trust is required when you change from joint owners to tenants in common. If you purchase as tenants in common, check if you still need a declaration of trust - I'd ask both solicitor and an accountant. You would still need to submit Form 17 to HMRC, but it could save the cost of drawing up the declaration. If you buy as tenants in common, your solicitor should also advise you ensure your wills are up to date.


11:58 AM, 16th March 2018, About 5 years ago

Reply to the comment left by Simon Coppen at 15/03/2018 - 20:27
Simon C - I can concur with your comments in that anyone reasonably comfortable with a spreadsheet can calculate what allowances are deductible from your rental income, apportion the tax liability according to your 99%/1% split and complete the annual HMRC tax return online. I asked an accountant to do it in my first year of ownership and was charged £600 for the work. Fortunately I was given the calculations submitted to HMRC and was astonished how simple it was!
You will need to factor in the tapering relief from S.24 over the coming years but the HMRC website is very helpful in this respect.

Dr Rosalind Beck

8:55 AM, 17th March 2018, About 5 years ago

Does anyone have any insights into how to bring adult children into the equation? I am specifically referring to how to use the annual CGT allowance by partially gifting a property where there has been significant gain.

Simon Lever - Chartered Accountant helping clients get the best returns from their properties

12:31 PM, 17th March 2018, About 5 years ago

Reply to the comment left by Simon Coppen at 15/03/2018 - 20:27
Hi Simon
Whilst you may not think you do not need an accountant I can tell you that the way you currently have things I could save you at least £3,000 in CGT or maybe even more when you come to sell the property.
If you do not plan to sell the property what about the inheritance tax when your wife passes on?
Are you absolutely certain you are claiming all the allowances you are entitled to?
You may be happy to do the returns yourself but it could be a false economy.
What happens when HMRC decide to investigate your wife's tax return one year. How would you know what you should and should not disclose to them?

Simon Coppen

22:24 PM, 17th March 2018, About 5 years ago

Reply to the comment left by Simon Lever at 17/03/2018 - 12:31
Even down south, a non earning spouse with a couple of mortgaged BTLs won't make enough profit to use up their tax free allowance. Using an accountant would just knock £600 (or however much they charge) off the profit...?
My wife has just started working a few hours a week so for the first time I'm keeping all the receipts as she will in the future have a tiny bit of tax to pay. But I still won't use an accountant. My calculations will now take 10 mins instead of 5. S24 may add another 5 mins (but won't changes the numbers). If I make an oversight and miss out on a deductible expense or something I guess i could cost us £50, but I'd still save £550.
If our tax situation ever gets complicated in the future I would use an accountant; I'm not anti-accountant, it's just that at the moment they couldn't save me enough time or money for me to consider using one. There must be a lot of people in a similar situation, i.e. only one or two properties and not affected by S24.
I do concede that I should probably see a tax adviser sooner rather than later. We don't plan to sell the properties any time soon and I'm aware we'll need to change the ownership structure in the future. I'll do some more research on property CGT soon I promise...!


9:32 AM, 19th March 2018, About 5 years ago

Brought this up before and still do not understanding why the split has to be 99% to 1%. Tenancy in common can have a split of 100% to 0% split. No one has yet to raised any issue with this arrangement and it is totally legal.

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