- Income Tax
Owning a property and renting it out for a steady source of monthly income makes you a landlord, but this also means that you may need to pay taxes and national insurance. Now, renting out a property jointly owned by you and your spouse, friend, family member, or partner qualifies you to pay the taxes, but paying taxes becomes a complicated task. Both of you will be required to keep records, file self-assessment tax returns separately, and, most importantly, you will have to pay the taxes as per your share of the rental income!
Now, if you are finding ways of reducing your taxes on your rental income when you have a jointly-owned property, let’s look at the two scenarios. Remember, your rental income will be counted as business income. So, here we go!
If the rental property is owned as ‘joint tenants’
In this case, you will enjoy equal rights on the entire rental property, and the rental income is split equally between the two. As a result, you both will be taxed 50:50. Remember, HMRC does not care whether the rental income is going into your bank account or your partner’s bank account. Also, in this case, the right of survivorship is applicable, which means that if any of you dies, the other individual will automatically inherit the share of the other individual or shareholder.
Now, saving taxes on your rental income seems a difficult task, but there is no need to feel disheartened. You can save taxes by changing your ownership type by applying for the Form A restriction, and you can do this regardless of whether the other owner of the rental property is ready or not for this change. This is known as ‘severance of joint tenancy’. You will have to send your application to the HM Land Registry.
If the rental property is owned as ‘tenants in common’
In this case, you can go for making an election on Form 17 to pay the tax on the rental income as per your unequal ownership. As expected, you must submit evidence to the HMRC about your ownership and can change the split of income for tax savings. Remember, if you own the rental property with your wife or spouse or a civil partner, this is the sole way to change the split of rental income from 50/50 to anything from 1% to 99%. Just remember that the total shareholding must come to 100%. Make sure to give a large share to your wife or spouse so that you can pay taxes at a lower rate. This works well when both of you are in different tax bands. This is a win-win situation as you can change your shares of ownership at any time by filing another Form 17.
Here, you need to keep in mind that you cannot use Form 17 if your rental property is a furnished holiday letting. Again, if you are a stay-at-home spouse, you can save more taxes using your personal allowance. It is currently £12,570 and this implies that if you are receiving up to £12,570 as rental income as per your shareholding in the rental property, you will have to pay no tax at all.
So for tax-saving purposes, always think about moving from joint tenancy to tenancy in common. However, it would be wise to proceed by seeking the professional help of experts. Based in London and Crawley, CoreAdviz is an accounting firm with experienced accountants and tax advisors who can help you in your journey as a landlord with their tax-saving strategies and accurate record of your rental income.