Do you jointly own a property with your friend, family member, or partner? You can save tax on this property regardless of who you own it with. The taxation process can be a bit overwhelming and complicated if you are earning passive income from this property.
This guide will discuss the top tax-saving tips for your jointly-owned property. Read on to learn everything and make the most out of these tips. For property tax advice in London and Walsall, visit us at IBISS & CO. today.
Joint Tenancy vs Tenancy in Common
Joint ownership has two forms. The first one is joint tenancy, where both owners have equal rights and shares in a property. If one owner dies, the remaining part—which would be half of the property— would be given to the surviving owner.
Since both owners have equal shares, the income earned from this property will also be separate for both owners. If both owners earn £5,000 each from this property, this income will be taxable. If the property is sold and both owners generate capital gains, their separate equal gains would be taxable.
Next is tenancy in common. In this case, the property’s joint owners have a predetermined share. If one owner owns 40% of the porosity and the other partner owns 60%, their taxes will be calculated on this predetermined percentage.
Changing the Default Equal Ownership
If you wish to change the default shares and income from your jointly-owned property, you must submit Form 17 to the HMRC. This will allow you to change your ownership share and rights from 50:50 to desired percentages.
However, in many cases, one partner owns the property and declares it as 90% ownership, and their spouse has a 10% share. Most people do this just to avoid paying taxes, but the HMRC will deem this invalid.
How to Save Tax
You can change and transfer ownership if you want to sell your property and save on taxes, and this can be done multiple times. However, for tax savings, you first need to transfer the property and then sell it, so you have less tax liability.
The person you will transfer the property to will also receive money. If they are not entitled to this gain, the transfer of your property’s share will become invalid. Hence, work out all the details before you sell your property.
To learn more about taxes regarding jointly-owned properties, visit us at IBISS & CO. Our property tax advisors in London and Walsall can give you the right business and tax advice and guide you further. For the best tax accountants in the UK, reach out to us today.