PROPERTY: Consider how you split your rental profits
Typically, when spouses or civil partners own a rental property jointly, the profits are taxed on a 50:50 basis, regardless of the actual ownership split.
However, at times it pays to split the profit on a more tax efficient basis than just straight down the middle.
Subsequently, the profit can be split according to the property ownership, as long as HMRC is notified.
Alternatively, the ownership split can be changed, provided the arrangement is as “tenants in common’.
Why it may benefit for a different split
As an example, if one spouse / civil partner is a higher rate tax payer, whilst the other isn’t then it would be the best option to allocate profits in a split that reduces tax as much as possible. Your accountant can help with the calculation.
Form 17 – 60 days to file with HMRC
A “Declaration of beneficial interest in joint property and income – Form 17 – has to be filed with HMRC along with evidence if any interest in the property is unequal. This must be filed within 60 days.
The declaration applies from the date of signature and any change in the split needs to be reported on a new Form 17. Changes could include:
• Change of ownership
• Change of income
• Owners cease living together under marriage / civil partnership
• Death of one of the couple
Should the form not be re-submitted, the 50:50 split is automatically re-instated.
Many of the dental and medical clients at Figurit have rental properties as part of their retirement portfolio. We are equipped to answer your questions and help to make the important calcuations to ensure you save tax.
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