Rental Income Spouse
Where the married couple has rental income from property, they can reduce the taxes by doing some good tax planning. If the property is owned jointly, both can claim rental income 50:50 in their tax returns regardless of ownership ratio (which can be different from 50:50). So it means rental income sharing can be 50:50 if ownership ratio is 40:60 or rental income sharing can be 30:70 if the ownership ratio is 30:70 etc. What is not possible is rental income sharing of 10:90 and ownership ratio is 60:40.
But in case of disposal of property capital gains or losses will be shared in the ownership ratio. No inheritance tax in case of gift of property between spouses if married couple have same domicile (Uk or Non UK).
Form 17 is required to be filled to HMRC if rental income is shared by married couple within 60 days. If the property is owned by single spouse or unmarried couple then Form 17 requirement does not apply.
Lets see an example,
A couple own a property which they let out. Wife owns 75% of the property and is entitled to 75% of the income and Husband owns 25% and is entitled to the remaining income. Assuming the profit from letting the property was £6,000, in the absence of a declaration, each would be taxed on £3,000 (ie, 50:50). However, as Form 17 has been completed and accepted by HMRC, Wife will pay tax on £4,500 (75% share of £6,000) and Husband will pay tax on £1,500 (25% share of £6,000).
But in case of disposal of property capital gains or losses will be shared in the ownership ratio. No inheritance tax in case of gift of property between spouses if married couple have same domicile (Uk or Non UK).
Form 17 is required to be filled to HMRC if rental income is shared by married couple within 60 days. If the property is owned by single spouse or unmarried couple then Form 17 requirement does not apply.
Lets see an example,
A couple own a property which they let out. Wife owns 75% of the property and is entitled to 75% of the income and Husband owns 25% and is entitled to the remaining income. Assuming the profit from letting the property was £6,000, in the absence of a declaration, each would be taxed on £3,000 (ie, 50:50). However, as Form 17 has been completed and accepted by HMRC, Wife will pay tax on £4,500 (75% share of £6,000) and Husband will pay tax on £1,500 (25% share of £6,000).
The better tax planning is if any of the spouse in the higher tax band then arrangement should be made to change the ownership ratio to get the maximum advantage of annual allowance. Another point to note is if the it is mortgage property then transferee is responsible to pay any stamp duty and mortgage liability.
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