Save Tax on Joint Owned Rental Property
Published / Last Updated on 14/10/2020
We know that landlord’s, buy to let and holiday let investors are under increasing pressure having been a government target for a number of years when it comes to taxation.
- Higher rate tax relief reduced to basic rate for loan interest expenses on mortgage payments.
- 3% surcharge on stamp duty
- Changes to lettings relief and private residents relief for capital gains tax
- Capital gains tax needing to be paid within a month of sale and possible changes to the rates of capital gains tax in the next budget.
A simple tax saving idea that may be helpful to ‘joint tenancy’ owner landlords e.g. husband/wife or civil partners and one pf the party is a higher rate tax payer is to consider changing the beneficial ownership to ‘tenants in common’.
This is known as a ‘severance of joint tenancy’ and a severance deed must be produced, signed and submitted together with a form: “Application Form SEV to enter a Form A Restriction” to HM Land Registry. https://www.gov.uk/government/publications/form-a-restriction-application-to-enter-sev
Joint tenants is where you both joint and equally own the whole property and therefore rents are share equally between the two parties so you cannot gain any tax saving for the lower tax payer.
Tenants in common means you change the beneficial ownership to specific shares in the property e.g. you each own 50% or one partner owns 30% and the other 70% etc. In simple terms, this means that you can organise your property ownership and share of rents to match the proportion of ownership.
That said, if you are legally married or civil partnership, HMRC would still consider you each have an interest 50% of rent even if you own the property 70:30.
To make sure you have the correct beneficial interest in the rents, as well as severing the ‘joint tenancy’ and moving to ‘tenants in common’ you would also need to notify HMRC using form 17 “Declaration of beneficial interests in joint property and income”. https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17
This would then mean you can accurately and legally allocate the rents received in the beneficial proportion that you own the property and then ensure that rents are allocated to the lower tax payer.
