My wife is about to inherit a rental property from my late mother-in-law, which was her home before she moved into sheltered accommodation. We intend to continue to rent the property out to provide my wife with approximately £1,400 a month to boost her retirement income. Her total income, including pensions, will not exceed standard tax bands. Our solicitor is advising the property is placed in our joint names so that we can use both our capital gains tax (CGT) allowances should we decide to sell in the future. My question is whether my wife can declare all the rental income on her tax return or if we will have to split it 50/50? I am still working and pay higher-rate tax, so would prefer not to share the income.
Joint owners can agree a different division of profits and losses to the share in the capital of the property and so occasionally the share of profits or losses will be different from the share in the property. For tax purposes, this should be clearly laid out in a formal agreement to avoid confusion.
Rental monies should be paid in the correct proportions into each individual’s bank account, reflecting the agreed share of income.
Importantly, the agreement will have no effect on the allocation of capital gains should the property be sold at a later date. Any profit from the sale would be divided based on the actual ownership share as detailed on the deeds and assessed for CGT accordingly.
Assuming you acquire the property in your joint names under the rules of joint tenancy, and you put in place an agreement splitting the rental income 100% to your wife and 0% to you, your wife can therefore declare all the income on her tax return.
David Wesley-Yates Chartered tax adviser at Red & Black Accountancy.