Jointly owned rental property

[Actors]

I was made redundant a while ago after a long and reasonably successful career with a large multi-national. I got a very nice pay-off which is now languishing in the bank making very little.

We plan to start a small property portfolio and will be looking to borrow around 60% of the purchase price.

This is very much my baby, I will be the "landlord" and my "job" will be managing the properties. DH has a very full-on FT job and won't have the time or the inclination to be involved an any practical level.

However, as I have no income, we will have to raise the mortgages jointly. Presumably, that means we will own the properties jointly and share any profits equally as far as tax is concerned, which means that I will be doing all the work, but only earning half the money and also that DH will have to pay 40% tax, where I (currently a non-taxpayer) would pay significantly less.

Is there a way round this? Can I charge DH a management fee for the work I'm doing on his half?

you can own the legal title jointly and have a deed regarding the beneficial interest saying that you own, say, 95% of the beneficial interest. That way your DH only pays tax on 5% and you pay tax on 95% of profit. A solicitor (the one who buys the property for you) can do you the deed for £100 or so...

Ah, that's great, thank you

You also need to do Form 17 and submit that to HMRC since they, by default, assume rental income from property is split 50/50 between husband and wife. Form 17 is only needed for husbands and wives - not for any other types of co-ownership.

Note that you also need to send them a copy of the paperwork of the change in beneficial ownership.

Thank you. So, would the mortgage company lend, based on DH's income, on a property he only owns 5% of? Would we actual own 95/5% (e.g. for estate purposes) or would it be 50/50 with me having a beneficial interest in 95% of the income?

If it is a btl mortgage, that may not depend on your income but rental income to value. An ifa should be able to advise you on that.

BTL mortgage is assessed on the rental income and it's ability to cover repayments, but all the mainstream lenders also require a minimum income away from the property

As far as I know HMRC only let's you split income unequally if the underlying ownership of the capital asset is also unequal. Otherwise certain anti-avoidance legislation catches it and the income still gets taxed 50/50. I'm not sure what the bank's view on such ownership is - as above, an IFA may help you there