Buy To Let Income For Married Couples

We are often asked about mitigating the tax on Buy to Let profits for married couples.

The basic rule is that the owner of the property pays the tax on the income. For example if the husband owns the property and is a higher rate tax payer then it is not possible for the wife to include the profit on her tax return to take advantage of her tax allowance and lower tax rate.

In this case the property could be transferred legally to the wife. This will not result in a Capital Gains Tax charge as spouse transfers are exempt. However there is a major potential catch with this in that if there is a mortgage on the property, and the transfer includes the other spouse assuming responsibilty for the mortgage, then Stamp Duty will be payable on the proportion of the property that is mortgaged.

If a property is owned 50:50 then the profits need to be apportioned equally between the spouses.

However if the property is purchased as “Owners in Common” (Tenants in Common in England) the actual percentage of ownership can be unequal. HMRC need to be notified of the unequal ownership by using Form 17 https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17 and then the profits can be apportioned in line with the ownership.

Legal advice should be sought for the purchase or transfer of a property.

Clients also need to be aware that HMRC has a computer system called “Connect” that collects data from the Land Registry as well as Companies House, the Benefits Agency, onshore and offshore banks as well as many others. So the ownership of a property is already known to HMRC and any attempt to bend the rules will ultimately be unsuccessful.