Property, as with most assets, can be owned by individuals, jointly with other parties in partnership, or by a limited liability company or a trust.
In most cases the taxation of rental income derived from letting a property is straightforward. Individuals holding property in their own name or in partnership, companies and trusts all pay tax on the net income received.
The position of jointly owned property can vary and in particular that owned by married couples or registered civil partners who are living together.
Property owned and let by married couples or civil partners (who are living together)
- HMRC will divide rental profits equally between spouses (civil partners), 50:50.
- This division of rental income may not reflect the underlying ownership. For example property may be owned 10% by one spouse and 90% by the other.
- If spouses/partners want the rental income split between them in accordance with the beneficial ownership they must make a formal election to HMRC. Once made the election cannot be revoked or changed, unless the underlying beneficial interest changes.
- Interestingly, the above rules do not apply to property held in a business partnership or to property that is let as a furnished holiday let.
Property owned jointly by persons not married or in a civil partnership.
In this case the rental income will always be allocated between the joint owners in proportion to the underlying beneficial ownership.
Married couples and civil partners usually have a choice therefore, to split the rental income equally if this produces a lower joint tax liability or, split the rental income in the same proportion as their ownership of the property.