Can I allocate all income to one owner?
The answer to this is- it depends on the paperwork
When you purchase a property you are likely to be asked if you want to own it ‘joint tenants’ or ‘tenants in common’. Don’t let the word ‘tenant’ put you off - in this context they are referring to you as the owner!
If owned as joint tenants, the owners are regarded by the law as owning the whole of the property without any form of separate share or distinction between them, so you must declare the income split equally between you.
Tenants in Common
If owned as tenants in common instead, HMRC will allow you to complete a form which officially notifies them that you are to split the income between you in different proportions. The split must be in line with the beneficial interest in the property, so if you are splitting income 70/30, the interest in the property must actually be 70/30 and HMRC may also want to see evidence that the original contribution to the purchase was in line with this split.
- It can be more difficult to provide evidence if owned by spouses, but certain action can be taken to help, such as ensuring the income does not go into a joint account but it is actually paid in the relevant proportions to two separate bank accounts etc.
- It is important to note that if you elect for a split other than 50/50, this applies across the taxes, which means that it affects your income tax position as well as your future capital gains tax (CGT) position and Inheritance Tax (IHT) position, so the implications of this would need to be reviewed before a final decision is made.
- If you try to change the sharing ratios on a regular basis, HMRC may disallow your request for a different split on the basis it is purely to avoid tax, so any change needs to be made with a long term view.
Other Long Term Issues
If owned as joint tenants, upon death, the whole of the property passes automatically to the surviving owner without the need for any direction to be made via a will. The ownership of the land held as Joint Tenants cannot be altered by a will so a will made by a Joint Tenant, which leaves the land to anyone other than another Joint Tenant would be ineffective.
As tenant in common co-owners are regarded in law as having separate and distinct shares of the property, upon death they may give their share away to who they wish via their will. The share owned by the deceased is protected by the requirement that another trustee has to be appointed before the land or property can be sold and the asset will then pass down to the family members in the manner they want.