Investing in a rental property can provide a valuable source of additional income. If the property is owned jointly, each partner pays tax on their share of the income. But for married couples who own property together, it’s different, and there are tax planning opportunities where they can minimise their tax.

Rental income for married couples when the property is owned jointly is normally taxed 50:50, even if the property is owned in a different proportion.

However, married couples can make a declaration to be taxed on the profits in the proportion of ownership (instead of the default 50:50).

Take the following example: a husband is the main breadwinner paying higher rate tax while his wife has little or no income. The couple has built up capital over the years and decide to invest in a property. In order to use the wife’s remaining personal allowance and her basic rate band, the couple split the ownership of the property 90% in favour of the wife and 10% in favour of the husband. With the correct election, the income can be taxed 90% on the wife and just 10% on the husband. So, most of the income can be taxed at the lower rates for the wife and she can use up her personal allowance where no tax arises.

It could work the other way around too. If the spouse owning the minority share has a lower income, we may not want to file the election and have that spouse pay tax on 50% of the income (even though that spouse may only own 10%).

If you have a property or are planning to invest in a property and are married or have a civil partner, there are a number of opportunities to minimise your combined tax burden.

Warning: The above is merely general guidance and should not be relied upon as formal advice. The advice we give to each client will depend on their specific circumstances and we would suggest that you take professional advice before taking any action in relation to the issues discussed above.   

To discuss tax planning in relation to your jointly-owned property, call Jill Springbett on 020 7625 4545 or email her at jill.springbett@mgr.co.uk.