Property allowance considerations: Joint properties held in unequal proportions
20th May 2019The property allowance was introduced on 5 April 2017, allowing a flat rate deduction of £1,000 to be claimed against property income, in lieu of keeping detailed records of expenses.
This however, raises the question as to whether individuals renting out a joint property are required to make the same claim as one another. In short the answer is no. The claims are not dependent on one another and in some circumstances it can be beneficial to make opposing claims, as detailed below.
Joint ownership of rental properties
It may be beneficial in some circumstances for one person to claim expenses as usual and the other to claim the property allowance, particularly if a property is held in unequal proportion.
Example: Peter and Tom
Peter and his son Tom own and rent out a property, which was purchased a number of years ago. Peter owns 90% of the property with Tom owning the remaining 10%. The property income, taking into account the most beneficial elections available, would be:
| Total (100%) | Peter (90%) | Tom (10%) | |
| Income | 15,000 | 13,500 | 1,500 |
| Actual expenses | (5,000) | (4,500) | (500) |
| Property allowance | (1,000) | (1,000) | |
| Taxable property income | 10,000 | 9,000 | 500 |
In this case, Tom is better off claiming the property allowance as his proportion of expenses is below £1,000. However, Peter clearly should not make the claim and instead should deduct actual expenses in the usual way (as these are well above £1,000).
It is therefore worth considering the percentage ownership of your rental property, ensuring that the most beneficial claim is made for each individual year on year, rather than for the property as a whole.
Other considerations
Depending on your circumstances, there may be further considerations. For example, if you jointly own property with your spouse and want to change the split of income to reflect the beneficial ownership, a form 17 would be required by HMRC.
In such cases there are other tax factors to consider including the implication for capital gains tax in the future, as well as non-tax factors such as wills and any mortgage on the property. It is therefore recommended to always get both legal and financial advice before proceeding with any transfer of beneficial ownership.
For more information on the property allowance and how it may benefit you, contact us here:
https://www.whitingsllp.co.uk/about-us/contact-us/
Disclaimer - All information in this post was correct at time of writing.
