In light of recent tax changes, including the extent to which tax relief is available for finance costs (including mortgage interest), many buy-to-let landlords have been considering what can be done to improve the tax efficiency of their rental portfolio.

For some people options might include:

  • Reducing debt in the rental business
  • Restructuring debt arrangements
  • Decreasing the number of properties in the portfolio
  • ‘Incorporation’; transferring the business to a limited company

For married couples (and those in civil partnership) that own property jointly, sometimes a significant tax difference can be made simply by altering the proportions in which they own jointly held property; for example where one spouse (or civil partner) pays a lower marginal rate of tax than the other. However, what must be remembered is that for such planning to be effective for income tax purposes, a number of steps need to be taken.

For tax purposes, if two spouses (or civil partners) own a rental property in joint names, the default position is that rental profits are taxed in equal shares (i.e. 50:50), regardless of whether in fact the couple do own the property in equal shares. For this to be any different the following are important points:

  • The tax outcome can only follow actual ownership between the couple.
  • Any changes in actual ownership between the couple must be legally effective.
  • Despite any changes in actual ownership being between a married couple (or civil partners) there are often still capital gains tax and stamp duty land tax issues to consider.
  • Appropriate filings must be made with HMRC which (subject to very limited exception) cannot have retrospective effect.

If you would like to discuss the above, or any other property tax planning matters, please contact James Cornish or Richard White on 01788 539000.