How to split property income tax efficiently

Quite often we come across landlord clients who are married and their spouse may earn significantly more or significantly less than themselves and would benefit from tax advice on the splitting of their property rental income to optimise their income tax.

If this is you, then read on…

Property income by default for a married couple is split 50:50 no matter what the underlying ownership is. This is called Beneficial Interest and sometimes this *may* result in half the rental income being taxed at 40/45% if you are a higher rate tax payer when your spouse may be a stay-at-home parent (say) and isn’t using up/ wasting part of their personal allowance. In this scenario, it would be much better to split the income 99% to the stay-at-home parent and 1% to the higher rate tax payer (say). It’s up to you to convince HMRC that it is NOT 50/50 by taking one of the following actions:

  • Transfer actual ownership to the lower income spouse (legal title to be transferred using a solicitor)


  • Make a declaration of Trust which transfers beneficial interest to the lower income spouse. The income should then be paid in the proportions agreed to each spouse and a special form would need to be filed with HMRC. A good solicitor should be able to do this for around £200.


  • Form a property partnership to receive 100% of the rental income and then the income can be split in the agreed partnership shares – this will mean that a partnership tax return would have to be prepared as well as two individual personal tax returns for each of you.


If any of this resonates with you and you’d like to find out more, talk to LeeP Accountants on 01733 699033


LeeP Accountants

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