How best to split your rental profits
It is common that rental property profits are split on a 50:50 basis between spouses or civil partners, even if the actual property ownership is not equal.
Sometimes this arrangement works, although at other times it pays for a couple to consider splitting the profits on a different basis to maximise the tax relief as a joint unit.
For example, if one of the couple is subject to higher rate tax from other income then it makes sense to avoid allocating more income to their pot if the other partner is taxed at a lower rate.
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You will need your accountant to help with working out the best split from a tax perspective.
What is the alternative to 50:50?
The profit could be split according to the property ownership. Here HMRC must be notified. The legal ownership split can be changed to suit, so long as the property is owned as “tenants in common”.
Form required for filing with HMRC – 60-day deadline
Profits are automatically considered to be 50:50 unless HMRC are notified. The form required to do this is Form 17
“Declaration of beneficial interest in joint property and income”.
This needs to be submitted to HMRC within 60 days of the new arrangement with evidence showing that the property split is unequal.
Any changes require a new form
It is important to note that any changes to the situation such as further amends to the property ownership or, the owners ceasing to live together as spouse or civil partners, requires a new form to be filed else the split reverts to 50:50. This includes if one of the couple dies.
Figurit help many commercial business owners with rental property accounts to maximise their tax savings through innnovate, robust tax planning methods. If you have a rental property and want to minimise tax, call our experienced team today.
020 7376 9333