If one spouse/civil partner owns a rental property solely in their own name but is a higher or additional rate taxpayer and the other spouse/civil partner is not, it would be beneficial for at least some of the rental profit to be taxed on the spouse/civil partner.
To alter the income tax percentage charged, ownership of part of the property must be transferred into the other spouse/civil partner’s name.
Should the owning spouse/civil partner not wish to transfer any material percentage ownership but still wish to reduce their tax bill, a nominal amount of, say, 1% could be transferred.
In this instance the HMRC Form 17 ‘Declaration of beneficial interest in joint property and income’ must not be signed because not signing will ensure that the underlying property ownership is (say) 99:1 but the income split is 50:50.
Andrew and Anne are married. Andrew owns a property yielding £8,000 rental income annually. Andrew is a 45% additional rate taxpayer and Anne is a non-taxpayer.
Andrew transfers 1% of the property ownership to Anne, retaining 99%.
Not submitting a form 17 will ensure that each is taxed on 50% of the income.
As Anne is a non-taxpayer, this transfer of 1% will produce a tax saving of £1,800 (50% x £4,000 x 45%).
This tip was first printed in Property Tax Insider in November 2016.