In recent years the tax system has been used increasingly to try to influence behaviour in the buy to let property market – the increases in Stamp Duty Land Tax, the restriction of tax relief for mortgage interest and the higher rate of capital gains tax for residential property sales are all examples of government policy to take the steam out of what is seen by some as an over-heated market.
But there are still ways to ensure tax is kept to a minimum and this often revolves around getting the right ownership structure for a property. For married couples and civil partners it is possible to transfer ownership without incurring tax and this will be beneficial where a high income partner can transfer all or part of the ownership of a property to a low income partner thereby reducing the income tax on rental income or avoiding it altogether.
Where property is jointly owned the default position is that income is split 50:50 between the joint owners. But this can be over-ridden by transferring ownership to different proportions e.g 90:10, normally by way of a simple declaration of trust and then ensuring HMRC is notified of the change by declaration on Form 17.
Of course, co-owners should consider all the implications of changing the ownership of a property, not just the tax effects.