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TaxRobin, Tax Consultant
Category: Tax
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Experience:  International tax
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My partner is starting a business in property trading, buying

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My partner is starting a business in property trading, buying and selling on. I understand the tax implications of this but I just wanted to check on the funding.  She is buying the property using our savings, I was going to classify my share as a loan to the business. The   property is going to be in her name. The main reason for this is that I'm a higher tax rate payer whereas my partner is only 20% currently. Do you see any major issues with this approach? And is it possible to make the purchase from my bank account as that is where our savings are or does this cloud the issue even further?Any advice you have on this would be much appreciated. CheersTommy
HMRC knows that a business needs funding. A proprietor can do this by introducing money from savings or assets that are already owned into the business. Or it can be done by borrowing money. She can take the money out of a joint account that you both have.
When the business is funded using borrowed money and that money is used for business purposes the interest is allowable as a deduction in computing the trade profits.
If you do not want to be a part of the business then you would want to have a repayment plan and agreement in place that states the interest on the loan (if any) and how the loan will be paid back.
Of course if you expect to be paid interest the you will need to declare the interest as income.
Customer: replied 3 years ago.

I have just read in a property book that it is advantageous to actually buy the property in both our names to take advantage of all tax allowances and levels. It states that a partnership is automatically formed when this happens and any income can be distributed to either party to take advantage of tax levels as long as they are dealers in the property. Can you confirm if this is true and if so do we need a written agreement or can we allocate income from the business in the most tax efficient way at the time?

Again, if true would you recommend both our names going on the purchase?


Income can not be allocated in any way you want unless your agreement sets that allocation from the start. You would also need to allocate the ownership percentage as well.
Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let or traded. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed.
However, where the joint owners are husband and wife, or civil partners, profits and losses are treated as arising to them in equal shares unless:
both entitlement to the income and the property are in unequal shares, and
both spouses, or civil partners, ask their respective tax offices for their share of profits and losses to match the share each holds in the property.
Merely holding property jointly does not constitute a partnership. If you wish to share the business then both your names would go on the purchase and you would need an agreement setting out your true percentages on ownership.
Customer: replied 3 years ago.

Many thanks, ***** ***** we will proceed then in my partners name to take advantage of her lower tax levels. I think if we get to the point where she is also on the higher tax rate we will look to form a Ltd company

That sounds like it may be the best way to proceed.
You are most welcome.
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