Buy To Let - Who gets the income?

[PurpleFlower1983]

Hi everyone,

This is probably a really stupid question and I’m sure we need to speak to a financial advisor but if my husband and I buy a rental property (50% cash from his inheritance) 50% buy to let mortgage in my name who gets the rental income? We would like this to go to my DH as he is currently self employed and the rental from this for me would take me over the tax threshold for child benefit etc. (Current earnings around £47000). He works in an industry that will take a long time to recover so for short term has no earnings.

Thanks

I think you are just confusing matters for the OP.
A company can indeed be a partner in a LLP, or indeed a normal partnership, but this is not relevant here - particularly as, in the main, joint property ownership is not even a partnership for tax purposes at all.
The page I linked to, which you are referenced earlier, is part of the HMRC internal manuals and includes discussions of where a property business would be classed as a partnership.
It also includes the very clear explanation of how joint marital property income is treated.
For the OP's purposes, and in terms of the initial question asked, the property income would be deemed by HMRC to be split 50/50 unless it is actually owned in different shares and they both inform HMRC of this.

Moving on from that technical point, which is very clear, is the consideration of whether the property should be brought in a company.
While there are good reasons for doing so, if the OP wants to go down this route they should get professional advice both on the initial set up, the extraction of funds, financing and also the eventual disposal taxation.

Yes, I only it can be done, but not how. Financial advisor would be best.
I don’t mean to confuse anyone, apologies for that.

I probably shouldn't have linked to HMRC internal manuals, as they are technical, but rather to general guidance.

If any part of the mortgage is in your name you are joint owners. For HMRC purposes if married it is spit 50:50 so that will take you into the higher tax bracket. Mortgage payments don't count as an allowance tonne deducted. You either need to have the mortgage solely in husbands name; or draw up a legal deed that splits ownership in another ratio; or buy via a LTD company

DH and I let out what was previously our family home, it was then owned 50/50 but we wanted me to have the rental income as I’m the lower tax payer.

We had a deed of trust (I think it was) drawn up which transferred full ownership of the property to me. We then sent that and a form to HMRC.

Takes some trust though as he now has no claim on the house, it’s mine solely, though you may possibly be able to word the deed to get around this (but I’m definitely not a lawyer so don’t know).

Oh but the mortgage is still in both our names, and he’s still responsible for half of it (it’s in the deed). How that works I have no idea 🤷‍♀️

Please consider what the situation might look like in, say, 3 or 5 years. What makes good sense this financial tax year might not in future ones if he's earning properly again.

Definitely think about this in the long term, don't let the tax tail wag the dog.
DH and I bought a house equally, we elected to own it 85% mine, 15% his for tax reasons. I am likely to have higher income than him in a few years so we'll change the ownership percentages then.
We have left the house to each other in our wills, if we divorced it would be thrown into the matrimonial pot regardless of the numbers on the deed of trust. Only issue for DH is if I become insolvent, he's faced with buying a bigger share back from the trustee in bankruptcy.

OP, I do this for a living and you are getting some very poor advice on this thread. I suggest you talk to a proper tax adviser or accountant but as a start:

First: consider your and your husband’s tax bands over the whole life of the BTL arrangement (may be the same as the mortgage term but may be shorter if you intend to live there at some point). Your husband may temporarily be not making much but if your mortgage is 25 years, making decisions based on the first 2 or 3 is nuts.

Second, work out how much the tax will actually be. Broadly, this will be income less mortgage interest expense and any other expenses (property management fees, annual fees, tenant find fees). But there’s some newish rules about the mortgage interest expense that are worth understanding - broadly the relief is only 20% even if you’re a 40% taxpayer.
Once you know what the taxable amount is between you, you can work out if you’d be saving much by trying to structure it in different proportions of ownership - I suspect it might not save much. It’s worth noting they if your DH is literally earning almost nothing he might be able to transfer part of his personal allowance to you.

Thirdly, structuring it through a company is “tax planning” that is about 10 years out of date. (Also a ltd company is definitely NOT an LLP which is not the same as a partnership, as a PP said.) There are at least 4 reasons this is likely a bad idea:

• yes, companies pay tax at 19% but dividends out of the company are also taxed, so you end up with double tax and you’re unlikely to save much.
• companies are expensive - you’ll need to file annual accounts and a company tax return which will cost you money and probably outweigh any tax savings.
• as a PP said, it’s complicated buying a house and getting a mortgage via a company.
• there are also rules to discourage owning property via a company, such as the Annual Tax on Enveloped Dwellings (ATED).

Good luck and I really do recommend you get some proper advice on this!

I'm no tax adviser but I do own a company and I want to echo what @FudgeSundae has said.

@FudgeSundae @Clymene

Thank you very much! We will definitely be getting some advice on this, it’s too complicated for us! We are accidental landlords with our first property and just do a simple tax return but this seems to be taking us to a whole new, complicated level!

My husband is earning nothing at the moment as he now works freelance in theatre. This was planned as our childcare arrangements needed looking at so the plan was that he would be a stay at home dad with occasional freelance work. (He left his permanent position in theatre last year.)

I’m thinking we might need to shelve the idea until my husband is once again in a position to get the mortgage in his name.

PlanDeRaccordement has not a fucking clue. A perfect example of repeating shite you’ve heard but have no knowledge of.