It is not generally appreciated that when a couple own a property jointly but are not married or civil partners, HM Revenue and Customs (HMRC) apply slightly different principles to the taxation of any rental income arising.
Where rental income arises on a property owned by a married couple or civil partners, HMRC will consider the income to arise on 50:50 basis. However, where the couple owning the rented property are cohabiting, HMRC will regard rental income as arising in proportion to the share of ownership of each. In other words, if a property is owned 75:25, the same split will apply to any rental income.
A married couple or civil partners may elect for a different split of income to apply, but it is important to be aware that this is a one-time election and cannot be revoked later.
The Capital Gains Tax (CGT) treatment of a property sold at a profit will follow the proportion of legal ownership. Here again, the tax situation can differ, as a transfer of an asset between spouses or civil partners is not a chargeable transfer for CGT purposes, so there is room for CGT planning. The election for income tax referred to above does not affect the CGT treatment.
If you are concerned about the taxation position regarding a property you own, contact us for advice