The benefits of tying the knot…

It may go against the concept of modern marriage as an equal partnership, but married landlords are being urged to structure, or restructure, their...

It may go against the concept of modern marriage as an equal partnership, but married landlords are being urged to structure, or restructure, their portfolios so they don’t own equal shares in their properties.

Most couples purchase their buy-to-let properties as joint tenants, so that they each own an equal share of the property and are entitled to an equal share of the returns and the tax bills, which seems fair.

However, if the two are in different income tax bands it makes more sense to structure their ownership as tenants in common in which they own unequal shares — the person liable for the least tax owning the larger share. This is something that few people realise.

Buying properties in this way — or restructuring an existing rental property’s ownership in this way — may be the difference between landlords scraping by or turning a healthy and consistent profit.

For an example of a married couple, one of whom is an additional-rate taxpayer (paying 45 per cent) and one a basic-rate taxpayer (20 per cent) with a £100,000 buy-to-let property which they rent out for £500 a month.

As joint tenants they would pay £1,950 combined income tax a year whereas if they set up the property as tenants in common with the basic-rate tax-payer owning 99 per cent and the additional-rate taxpayer owning 1 per cent they would pay income tax of £1,215 — a saving of £735.

Beware, however, that the tax office will assume that married couples share income from the property on a 50-50 basis unless they provide a declaration of interests and income (income tax form 17).

Of course it is not only income tax that needs to be taken into consideration. For married couples, capital gains tax may need to be considered when the property is sold — the person owning the larger share will need to look at reducing their liability with tax reliefs if they can. When restructuring property that they already own, stamp duty may also be payable.

Restructuring property from a joint tenant structure to tenants in common is more complex if the couple are not married because they may be liable for capital gains tax at the time of restructuring.

So why not buy the property entirely in the name of the lower-earning partner?

Mortgage rates tend to be lower for higher earners. By buying the property as tenants in common, both partners’ incomes are taken into account when applying for a loan.

The lower-earning spouse would find it more difficult to get a mortgage, and the interest rates could be significantly higher.

Knowing about this little-known way of structuring one’s buy-to-let property purchase may prove to be the difference between an investor choosing to place their money in the property market or not.

If you found this article interesting or have any questions don’t hesitate to get in contact,

Katie Wybrant

Lettings & Sales Manager

T: 0191 491 0344 Option 1

If you need help with any property advice then let me know – Including Sales, Lettings, Refurbishment or Investment.