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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Im thinking of getting a buy to let property Im am not working

Customer Question

Im thinking of getting a buy to let property
Im am not working but am liable for 20% tax- already have a buy to let
my partner (not married pays) 40% tax
If we buy a property splitting the property ownership
I own 60% and put in 60k capital- he owns 40% but takes out a mortgage to fund this - is it ok for him to offset the mortgage against the income he gets- say we split the income so the mortgage was £2500 pa would it be ok to say his portion of the income is £2500. in effect for tax returns we would be submitting a tax return each for a portion of the property. thanks
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
You are assumed to own a property on a joint tenancy 50/50 unless there is evidence to the contrary. Then it becomes a tenancy in common.
Yes, the interest element of the mortgage only may be used to offset the rentals from the buy to let property. He is taking the loan to finance his share of the purchase consideration thus may use all the interest to offset the rentals. This is a discrete matter within his taxation account.
To allocate the rentals other than in ownership proportions it would be necessary for there to be an element of additional activity over the management of the property. For example, traditionally the wife could be allocated the rental if she does the majority of the managerial activities over the building thus relieving a higher income earner of additional taxable remuneration.
I do hope I have shed some light on your question.
Customer: replied 2 years ago.

thanks it was my understanding that as we are not man and wife we can allocate the income on whatever basis we choose -

is this the case if are tenants in common ie 50/50 ownership or not joint tenants say i own 60% he owns 40%

thanks margaret

Expert:  bigduckontax replied 2 years ago.

Firstly Margaret, please accept my apologies for the long delay in responding. I had been out since first thing this morning, sorry.

I take your point, but we are now getting into rather grey areas. You cannot help but note the increasing acceptance of the legal system of your sort of arrangement. My answer was framed on the safe principle of splitting income in accordance with share and opening a door to extending that as has been done for many couples. I had grasped the position that you were tenants in common, indeed I mentioned it in my original reply.

Here is the opinion of Robinson Reed and Lawson, Chartered Accountants and Chartered Tax Advisers:

'As far as the rent from a property is concerned, the owners (whether joint or tenants in common) can agree between themselves how the income is to be split and the income tax on that rent will follow the split they agree on. It is important to realise that the rent must actually be split in the agreed proportions if this is to be effective for tax purposes.'

So you, indeed can, do as you wish. However I would caution you the have an written agreement in place in the event of an HMRC enquiry. My original answer was a definite 'belt and braces' position which should be cast iron and impervious to challenge.

I do hope that clears the air for you. Please be so kind as to rate me before you leave the Just Answer site.

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