Reducing Income Tax & SDLT on Jointly Owned Property Rental Income

How can you reduce the SDLT and income tax you pay on jointly owned property rental income?

If you own a property jointly with your spouse – one of you being a higher-rate taxpayer and the other being a basic-rate taxpayer, then you should seriously consider changing the ownership structure of the property so that the basic rate taxpayer declares most of the tax. You can’t just decide to declare the income that way, as, by default, the tax has to be declared 50/50 if you own the property jointly in the usual manner, known as Joint Tenants.

You can ask a solicitor to change the ownership to Tenants in Common which allows you to reorganise the ownership structure. That is often 99/1 as the higher earner needs to retain some ownership to satisfy the mortgage lender. The deed of trust that shows the new ownership then has to be lodged with HMRC and you can declare the income in the new proportion from that date.

There is a potential Stamp Duty Land Tax (SDLT) charge on this transfer which needs to be reviewed before proceeding. The charge is on the ‘consideration’, which is the amount of mortgage transferred from one party to the other. The equity isn’t included in the calculation and you only pay SDLT on the consideration given, after deducting the usual SDLT exemption.

Here is an example of how that works:

The owner of a property valued at £500,000 with an outstanding mortgage of £400,000 transfers half the property to their partner. Their partner takes on 50% of the mortgage (£200,000).

HMRC charge SDLT on the amount paid for a property or the amount of ‘consideration’ given.

By taking liability for the mortgage, the owner’s partner has given ‘consideration’ of £200,000 for their share of the property which is £1,500 SDLT (0% of the threshold of £125,000 + 2% of £75,000).

We are always happy to advise clients on the issues surrounding such property transfers. It can be very beneficial but it is important to understand possible issues before commencing.

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