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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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= a question about rental income tax. I am a high rate tax

Customer Question

Hi = a question about rental income tax. I am a high rate tax payer. My wife is not. Wopuld it make more sense if she (and her bank account) recieved the rental income(and not me)?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

If the property is owned jointly by a married couple or those in a civil partnership, then the rental income should be split on a 50:50 basis for tax purposes. That is, unless it is actually owned in proportions other than 50:50 and you inform HMRC by completing and submitting a form 17 to them. It makes no difference whose bank account the rent is paid into.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

OK. So it is all about the ownership. We do jointly own, so you are saying it doesn't matter who's account the funds goes into (mine or my wife's)? So we would both have to declare the 50% of rental income each on our annual returns? Does that also apply to costs (we would both apply 50% of mortgage costs, repairs, etc)?

Expert:  TonyTax replied 1 year ago.
That's correct. You would split the rental income and the expenses on a 50:50 basis in the absence of a form 17 declaration to HMRC so, assuming you own only one rental property, your tax return property pages would be a mirror image of your wife's.
Customer: replied 1 year ago.

Any quick means of transferring ownership of property fully to my wife to reduce the tax obligation? Even though the mortgage is paid out of my account and is joint, would that create complications?

Expert:  TonyTax replied 1 year ago.
You can read about transferring a property here. Such a move may give rise to questions from your lender.

If you did transfer the ownership of the property to your wife but paid the mortgage interest from your own account, it would still be a deductible expense for tax purposes.
Customer: replied 1 year ago.

In the notes you sent on transfer of ownership, I could 'give the property away'. Could I do that by giving it to my wife, and not informing the mortgage company? Is the gift taxable?

Expert:  TonyTax replied 1 year ago.
Gifts between married couple's are tax neutral. ie no gain, no loss. If the property was ever your main home, you need to be careful about preserving main residence relief and letting relief if your wife wasn't on the deeds during her occupation of the property. If it has never been your main home, then you don't have that issue to consider.

I would have thought that the mortgage company would be notified if there was a change of ownership. A property lawyer would be best placed to advise you on that.
Expert:  TonyTax replied 1 year ago.
I have to go out but I will be back at my desk in about 30 minutes.
Customer: replied 1 year ago.

This is our prime residence - when we move out I was proposing gifting to my wife as single owner whilst we rent it out, but the process sounds complicated. Can you remind me of main residence relief and letting relief?...

Expert:  TonyTax replied 1 year ago.
Has the property been the main residence of you both and owned jointly since you bought it?
Customer: replied 1 year ago.

Yes - 12 years ago. Always in both names.

Expert:  TonyTax replied 1 year ago.
Thanks.

Let me consider that for a bit.
Expert:  TonyTax replied 1 year ago.
I'm back.

If you sold the property now or within 18 months of moving out, there would be no Capital Gains Tax to pay as the whole gain would be covered by main residence relief.

If you transfer your share of the property to your wife and it is subsequently sold after a period of letting, then your wife would qualify for exemption from CGT for the period that she lived in the property and for the last 18 months of ownership. Letting relief would be available for any period of letting not covered by the last 18 months of ownership or owner occupation to a maximum of £40,000. The gain would be calculated using the sale price and the original purchase price as your wife would take your half as her own as if that was the situation from day one.

If the property was put back into joint names before being sold but after the letting ceased, whilst you would qualify for main residence relief for the period that you lived in the property on your share of the gain, you would not be entitled to letting relief on your share of the gain as the property will not have been let during your ownership of it. That in turn could dilute your wife's letting relief on her share of the gain and lead to a higher CGT liability. It might not but it could. It depends on the figures.

Of course, if the property was sold whilst owned only by your wife, if main residence relief and letting relief didn't cover all the gain and your wife had a low income, a large part of the taxable gain would be liable to CGT at 18% and not 28%. As a higher rate taxpayer, you would pay CGT at 28% on the taxable part of your share of any gain.

Much depends on what your future plans are and what the value of the property will be if and when you decide to sell it. Of course, tax rules could also change for the better or worse.

Take a look here for information on main residence relief and letting relief.
Expert:  TonyTax replied 1 year ago.
Hi again.

It's been a few days since I answered your question. Is there anything you need further clarification on?

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