Request a Quote

Request a Quote

Please complete the form below, we’d love to hear from you!

Rental properties: Getting the legals right

  • 20th August 2013

Rental properties: Getting the legals right

We all know the expression 'do as I say, not as I do'; sometimes you know what the right course of action is, and are quick to point it out to others, and yet you don't seem able to follow it yourself. So it was in the recent tax case of an accountant who tried to dodge the tax liability on property held jointly with his spouse; his argument being that as she was the one carrying on the business only she should be assessed on the rent.

It can be tax efficient for rental properties to be held by the spouse with the lowest income. For example, Mrs A pays income tax at the higher rate (40%) and Mr A pays tax at the basic rate (20%). If they buy a property in joint names then half of the profit on the rent will be taxed at 40% and the other half at 20%, giving an effective rate of tax of 30%. However, if Mr A owns the property then all of the profit on the rent will be taxed at 20%. This could also be used to avoid or reduce the impact of the high income child benefit charge.

So far so good: if you want the income from a property to be taxed on one spouse only then only that spouse should own the property. However, this may not always be possible; for example, because the lower-income spouse can not obtain a mortgage. This was the problem facing our accountant and his solution was to treat all of the income arising from the property as belonging to his wife on the basis that she managed the property business: all income/expenses were paid into/out of a bank account in her name, she dealt with the tenants and agents and she attended to repairs and maintenance.

Unfortunately for our accountant, the tax law in this area is quite clear: where a property is owned jointly by a husband and wife the income and expenses are to be split between them 50:50 no matter who does what. Our accountant did have another option open to him: completion of Form17 which enables couples to make a declaration of their beneficial interests in an asset. Unfortunately he did not go down this route and he now faces a significant bill for unpaid tax, interest and penalties.

The moral of the story? Always make sure that the legal and other documents are in place at the outset to give you the tax treatment you want.

Who writes this?

Stephen Relf

Stephen Relf

Tax Consultant
Find out more about Stephen
  • Very smooth changeover to BW, with good communication at all times. Very efficient in the production of the accounts (as promised) and the Partners are delighted with the advice received to date.

    Practice Manager
  • BW Medical Accountants have a good working knowledge of General Practice and are keenly aware of the challenges Practices face within the changing environment of the NHS.  Benfield Park have been very impressed by the way BW Medical continue to deliver the range of services they provide from Accounts to Tax and NHS Pension advice. 

    We have found Practice consultation and engagement from BW Medical specifically helpful to shape the future of the Practice.

    Senior Partner
    Benfield Park Medical Group, Newcastle
  • We had no hesitation in moving to BW Medical Accountants.  For any business your accountant is integral, and for us one of the most important factors to this relationship is to have a personal and trusting approach, which BW have undoubtedly achieved. 

    The service we receive and the interest they show in our practice assures us that they have a genuine interest in us and commitment to us.  More importantly they are always helpful and polite to answer even the dumbest of questions!  They give us confidence and reassurance knowing that they are always very up-to-date with all the numerous changes within general practice and we would have no hesitation in recommending them to other practices seeking a professional and personal accountancy service.

    Jackie Rotherham, Practice Manager
    The James Street Family Practice, Lincolnshire
  • We moved to BW Medical Accountants in 2013 and we are delighted that we have.  Having been in the same business for over 20 years it is important to have a relationship with the accountancy team but most importantly you need to have trust.  We made the decision to move our business to BW Medical Accountants and having worked with the Team especially Tina we are very satisfied.  Tina going through the accounts brought to our attention many things that I was not aware of in the past.  The first years' experience can only be described as excellent.

    Customer service is first and foremost with BW and this shines through as each and every one of them are approachable, helpful and most importantly understand and know the business.  General practice is complex and is going to get more complex in the coming years.  We need Accountants who truly understand our business. We as a practice and as individuals would certainly recommend BW Medical Accountants.

    Gloria Middleton, Managing Partner
    Westbourne Medical Group, Sunderland
  • We changed to BW Medical Accountants and I would say we have just had the most transparent and understandable end of year meeting and the best planning advice I have ever had in 16 years of practice.

    GP Partner

Newsletter Signup