Tax man is tracking income shifting couples

Married couples who have joint ownership of a buy-to-let property are urged to consider altering the split of rental profits in order to lower their tax bill.

HMRC is looking at situations where rental properties that are jointly owned by a husband and wife do not have an equal split of the rents. There are clear rules that set out what is and is not permitted, but solicitors Smith & Williamson say there are legitimate things that married couples can do.

“It is legally allowed to split rental profits in a share other than 50:50 between married couples, but this must be done in the correct way,” a spokesman explains.

“Not following the correct procedure could land partners in trouble with HMRC.”

Irrespective of the actual beneficial ownership ratio, the default split for rents from a buy-to-let property owned by a husband and wife is 50:50 as joint tenants of the property.

But if the two partners are on different tax bands they could benefit from altering this ratio.

Shifting more of the rental yield to the person on the lower income tax band could save hundreds of pounds on their annual tax bill.

Holding the property as tenants in common allows partners to set a different ratio for how the rent is split.

To do this, the couple must provide evidence to support the claim for unequal beneficial ownership, such as a declaration of trust. This must be submitted to HMRC with on a special form.

This form can be completed at any time, providing it meets with the documented factual ownership of the buy-to-let property.

The declaration has to show the beneficial interest in both the income covered in the declaration and the property from which it arises. Once this has been signed and dated it must reach HMRC within 60 days and is effective from the date of signing.

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