In the case of properties where there is the involvement of multiple owners is observed, there will come certain expectations from HMRC. This will make each partner liable for paying tax on the amount of income they share, file for the self-assessment tax returns separately, and maintain the records. People find splitting rental income for tax purposes to be tax efficient and reduce the amount on their tax bills in such cases as well. Like every other income source, this joint venture also brings in some tax implications that each partner will have to consider seriously.

Moreover, there has to be routine preparation for making a declaration of the joint property so that the tax bills are sent to you accordingly. Many people wonder at this stage who is responsible for splitting the income. Because the preparation of the income is different for each one of them. HMRC normally consider the partners to pay tax on half of the income so it is an automatic split of income between the joint owners. The income is split because of the tax purpose. There are several questions asked regarding this split. We have got you covered here in this article and you will find the answers in the discussion on the split of income for being tax efficient, how much amount of tax each partner will pay, how to choose the different split, and what will happen if there is a chance of selling the property.

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Splitting Rental Income for Tax Purposes – How Much Each Partner Will Pay?

If you are not a married couple, the process of share is very simple for your case. You will simply have a share in the rental profit and it will be dependent on the share percentage you own for a particular property. Here we will take an example of a live-in couple who are together for quite some time and have invested in a property together. The property is flat for example. 70 per cent of the money is invited by the female partner and the remaining 30 per cent is the share of the male partner.

They decide to put the property on letting to earn from the rental income. Now the share of income will depend on the investment. The female partner will get 70 per cent because of her investment percentage, whereas the male partner will get 30 per cent. Again because of the percentage of his investment share. Furthermore, the case becomes a little different when you are in a civil partnership or a married couple. You will be liable to invest with a ratio of 50:50 and the same will be the matter of rental income share. It does not matter to HMRC whose account details are being used for the transfer of the rental income unless the 50 per cent share is received by each partner.

Different Splits – How to Choose It?

The stage of choosing a different split and how to do it will totally depend on your situation. Because the scenario will be unique and always varies from one person to another. However, the following are a few imperative factors that you should consider:

• If you aim to save more on tax by being tax efficient, you have a chance by using your personal allowance. This is possible only when one of the partners is staying at home.
• If each partner falls into a different tax band, there are chances to get the rental income taxed with the reduced rates. This will allow you to get reduced tax bills as well.

Moreover, in the case you are not a married couple, you can take the help of a lawyer who can draft a Severance of Joint Ownership for you. You will have to file this Severance of Joint Ownership by getting in touch with the land registry. There is no other requirement to file with HMRC. There will be a new percentage in your next self-assessment tax returns that you will have to use further. In the case of civil partnership Declaration of Trust will be drafted by your lawyer. You will fill it out with HMRC after the completion of form 17.

What Will Happen If We Sell Out the Property?

Several people enquire about a situation when a couple who are in a civil partnership or a married couple aim to sell the property. This is imperative to understand here that the legal title of the property is not transferred when you as a married couple plan to file a declaration of form 17 and trust. This is because the selling situation of the property will require you to reverse the process. The following steps have an explanation of how is that possible for you:

1. You should assign back the beneficial interest that is 50 per cent for each partner.
2. You will be required to file form 17.
3. This will allow each partner to use his tax-free capital gains tax allowances.

The Bottom Line

Now that you have gathered a fair amount of information about splitting rental income for tax purposes, we can bring the discussion towards wrapping up. We can say that the tax implications on the jointly owned property are a tricky process in comparison to other situations as you will have to consider multiple factors like the investments share of each partner and how much each partner will pay in form of tax. We hope these few minutes of reading will help you to develop a better understanding of tax implications related to jointly owned properties. This will allow you to make better choices.

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Disclaimer: The information about splitting rental income for tax purposes provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.