Joint ownership of property, whether as a joint tenancy or tenancy in common, offers myriad benefits that can lead to significant tax savings and financial advantages.

In Property Tax Masterclass 2024 - Part 2, Carl Bayley delves into the details of joint property ownership in England and Wales, focusing on key tax benefits and strategies for maximising these advantages.

Understanding Joint Ownership

Joint Tenancy vs. Tenancy in Common

Joint ownership can take the form of either joint tenancy or tenancy in common. A joint tenancy assumes an automatic 50/50 split of the ownership, while a tenancy in common allows for any percentage division of ownership. Each joint owner owns a distinct share of the property and can transfer their interest independently.

The Tax Benefits of Joint Ownership

Income Tax Savings

One of the primary benefits of joint ownership is the ability to leverage multiple personal allowances and basic rate bands for income tax purposes. For married couples and civil partnerships, this can be a considerable advantage. Each joint owner can use their personal allowances and basic rate bands, potentially saving a higher rate taxpayer up to £12,500 annually. This is particularly valuable when considering that these savings recur each year.

Making Tax Digital and Reporting Requirements

Joint ownership can have nuanced implications for tax reporting. Each joint owner must file a separate tax return for their property business, which could increase administrative tasks but may also offer potential benefits by keeping them out of the Making Tax Digital (MTD) requirements and reducing the overall reporting burden.

Strategic Allocation of Income and Ownership

For Married Couples

Couples can strategically allocate income and ownership through the use of Form 17, which changes the default 50/50 split of income from jointly owned property. Once filed, this changes the proportion of income taxed on each spouse based on their actual beneficial ownership. However, this election is permanent, so it should only be used if beneficial in the long term.

Couples can also opt to retain substantial beneficial ownership while allocating high portions of income to the non-earning or lower-earning spouse. This can be achieved through tenancy in common, where, for example, one spouse holds 99% ownership and the other 1% but the income split is still deemed 50/50 for tax purposes.

For Non-Married Joint Owners

Non-married joint owners, such as cohabiting partners or siblings, have more flexibility. They can agree to any proportion of income sharing, independent of their beneficial ownership stakes. This means that two joint owners can adjust the income share to optimise their tax situation annually. For instance, Anne and Marie might own 25% and 75%, respectively, yet choose a 50/50 profit split one year and a different split the next.

Transfer Strategies and Tax Implications

Transferring Ownership

Transferring ownership between spouses usually doesn’t trigger capital gains tax (CGT) but may incur stamp duty land tax (SDLT) if a mortgage is involved. If the mortgage balance exceeds £40,000, SDLT is calculated on the assumption of debt. Thus, careful planning is necessary to avoid unintended tax liabilities.

Inheritance and Capital Gains

Transferring a small share of property to a spouse or another joint owner can sidestep significant capital gains tax costs due to the reduced annual exemption. Larger shares can be transferred to benefit from potential inheritance tax savings, provided that the original owner retains some ownership and hence some income.

Practical Considerations and Pitfalls

Compliance and Administration

Each joint owner must comply with relevant tax obligations and ensure proper registration for self-assessment. This includes understanding the potential penalties for non-compliance. They must also ensure receipt of their agreed share, typically by using separate bank accounts, to avoid scrutiny from HMRC.

Long-Term Considerations

Form 17 elections are permanent, making it crucial for married couples to consider long-term implications before changing their income splits. Non-married joint owners must ensure their agreements comply with tax regulations and maintain clear records of those agreements to demonstrate compliance.

Joint ownership of property offers significant tax benefits by allowing strategic allocation of income and leveraging multiple personal allowances and basic rate bands. By carefully planning ownership structures and understanding the tax implications, joint owners can maximise their financial advantages and minimise tax liabilities. Proper administration and compliance are key to sustaining these benefits and avoiding potential pitfalls.

Through savvy tax planning and strategic joint ownership, individuals can gain significant financial leverage, making joint property ownership a powerful tool for both income tax savings and long-term wealth preservation.

Exploring these strategies in detail can empower property owners to make informed decisions that align with their financial goals and tax-efficient strategies. Whether it involves adjusting income splits annually, utilising Form 17 for permanent changes, or strategically transferring ownership, understanding and leveraging the benefits of joint ownership can create substantial and recurring financial advantages.

For the full session, please click here. Carl Bayley covers the following topics during this course:

• The benefits of joint ownership and how to maximise them
• The cash basis for landlords: friend or foe?
• Selling property: how to plan for, and minimise, the Capital Gains Tax burden on property disposals
• Buying property: what can be done to reduce Stamp Duty Land Tax (or its devolved equivalents)?
• Is using a company the answer: the pros and cons of investing in property through a company
• The new Government and the private rented sector: what can we expect to see from Labour now they’re in power?

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.