Friday 13th February 2009 Blog

How Your Clients Can Share Family Rental Income

 In these difficult times it makes sense to share out the family income as much as possible so all the family's tax free allowances are fully used. Your clients can't redirect some of their pre-tax salary to their family members, but they can give their spouse or grown up children assets that will generate income. A let property is ideal for this.

First check how your clients let property is owned. Is it held...

- just in your clients name, as 'joint tenants' meaning the owners hold equal shares in the property, or
- as 'tenants in common', when the owners may hold different proportions of the property, say 30% and 70%.

Generally property owners are taxed on the proportion of the property income that relates to their interest in the property. However, married couples are automatically taxed on half the income each, unless the Taxman is told otherwise.

Half the profits from the property may not use up all of your clients spouse's personal allowance. To put more of the property income in their spouses hands to help save your client tax they need to change the way the property is owned so your clients spouse owns a larger proportion of the property. To do this they can ask a solicitor to change the ownership so the property is held as tenants in common in the shares your clients want.

Once this is done they need to tell the Taxman who owns what share in the property by completing Form 17 and sending it to their tax office. The new ownership proportions will apply for tax purposes from the date of change as long as the Taxman receives the signed Form 17 within 60 days of the change in ownership.

Your client won't have to pay capital gains tax when they transfer a share in the let property to their spouse if this is done in a tax year when they are living together.

If your client is not married to their partner, the gift of a share in property is treated as a sale at market value and they may have to pay capital gains tax on that deemed sale. The same applies if your client gives a share in a property, or a whole property, to their children.

If the mortgage secured on the let property is also transferred from the name of one person into the names of both of the owners, the new owner may need to pay some Stamp Duty Land Tax if the amount of mortgage transferred is above stamp duty limits. However, the new owner needs to be included on the mortgage deed so they can claim part of the mortgage interest as a deduction on their tax return against their portion of rents received from the property.
 

Posted by: Bookcert Mentoring Team

Friday 13th February 2009

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