I own a mortgage-free investment property in my sole name, but my sister contributed 50% of the funds to buy it. What I would like to know is can I elect to give all the rental income from the property to my sister? She does not work so needs the income whereas I don’t want the rental money to tip me into a higher income tax band, and I don’t currently need the extra income.
The tax liability on the rental income will be determined by who owns the property. So while you can give the income generated to your sister, as you are the sole owner of the property you will be solely liable for any income tax on the rental income.
There may be allowable expenses which you can deduct from the rental income to reduce your taxable profit. These could include, for example, general maintenance and repairs to the property, insurance such as landlord’s policies for buildings, contents and public liability and letting agent’s fees.
If your sister owned part of the property, she would be liable to pay income tax on part of the taxable profit.
Splitting the income from a buy-to-let property
In the October 2017 we printed a letter asking whether married couples can split the income from a buy to let unequally in order that the spouse who has a lower income tax rate can take a greater proportion of the rental income.
We have had some letters asking for further clarification on this matter, so here you go.
HMRC assumes that income from a property is split 50:50 between a husband and wife. If you own the property as joint tenants, then you do not own the property in shares at all, but are entitled jointly to the whole of both the property and the income.
However, if a husband and wife own property as tenants in common, then they are each entitled to specific shares in the property and the income arising from it. To shift the split of the income as tenants in common, you can ask a solicitor to draft a declaration of trust and complete HMRC Form 17. File the form with your tax office within 60 days and HMRC will tax rental profits in line with the shareholdings.
If you own a buy-to-let property as beneficial joint tenants, then you can change the ownership to tenants in common and then follow the same steps as above.