Who pays property tax?

Property people should follow a simple rule when working out who pays the tax on rents on selling a rental property.

The rule of thumb for finance professionals is tax follows ownership of an asset.

For a buy to let property, the owner is the person who benefits from the rental income or proceeds of a sale.

HM Revenue and Customs will always try to chase down the ‘beneficial owner’ for any tax due.

Some families and groups of friends complicate the issue by letting one of the group run the property, and let them keep the rents. Then the taxman comes calling and wants a share of the profits from the owner and they can’t pay because they have let someone else take the money.

Everything ends in a complicated mess that is time-consuming and expensive to unravel.

The beneficial owner is generally, but not always, the person listed on the title deed to the property at the Land Registry.

In English law, a property can have up to four owners who can set up their ownership in any percentage they like. Each owner pays tax according to their percentage of ownership.

For instance, a buy to let makes £6,000 a year profit and has three owners – the first owns 70% and the others 15% each – the first pays income tax on £4,200 and the others pay tax on £900 each.

The same rule applies to capital gains tax. If the house was sold, the chargeable gain – the cash left after deducting allowable capital costs – would be split according to the 70-15-15 percentage and tax charged accordingly.

Specific rules also apply to transferring ownership. Giving or selling part or all of the property triggers capital gains tax unless the equity passes to a spouse or civil partner.

Even husbands and wives have to file a form to notify the taxman they are adjusting the percentage of ownership between each other.


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