I am in need of some help and I am not sure if anyone may have the answer. This is a question for myself. We have a house that we rent out and are just about to buy house no2 to rent out also. Both of these houses have a buy-to-let mortgage and the one that we live in has a normal residential mortgage. So far thats straightforward. We have been asked if we want to be 'tenants in common' or 'joint tennants' on the Land Registry, this is where we get abit stuck (hubby and me). We made Wills about 6 months ago shortly after we purchased house no1 to rent out and we are 'joint tennants' on the Will so basically hubby will get everything if I die first and vice versa if he dies first. We were happy with that but no I am wondering if we have made the correct decision regarding splitting the taxes etc. Regarding the 2 buy-to-let mortgages we do not have life insurance on them as the mortgage is easliy covered by the rent and to be honest if one of us pops our clogs, so long as there is a tennant in there then there won't be a problem and both houses are very rentable and are in good areas. The new one is close to the University and a good area and all the agents say they are crying our for more landlords, so we have done are research over the past year, so when we made our Wills, because the rental house has no life cover, he said only the profit when sold will go into our estate and not the whole amount. We have life cover on our residential mortgage so it would get paid off on the death of one of us, so the other person woudn't loose the house. Hope all of that is making sense now?
Anyway I will get to the point now, we are about to exchange on house no2 and I know that if it was 'Tennants in Common' I could possibly apply to HMRC to have all the tax owed in my name only (hubby is a higher tax earner), this would suit us fine as I am the lower tax earner, but I believe as I rang HMRC along time ago and they said that because the mortgage is 50/50 I can't do this? This is where I am stuck. Also because house no1 is in 'joint tennancy' and the Wills are also the same, house no2 cannot be put through as 'Tennants in Common', everything needs to be the same apparently? (I was told by an account that I could put all the money earned in my name but I am not sure). There is a form from HMRC if its all to go in my name.
What I don't want to do is make a mistake and pay more tax (well hubby pay more tax), we want the most tax efficent LEGAL way to do this. I feel that we need to seek professional advice, the solicitors can only advise us so much and maybe now its time to get tax advise before its too late. We can change the first house and the Will, but will cost us to do so, which in fairness I don't mine paying if the savings are going to out weigh it. Also both houses are bought for the long term investment not the short term. I realise we will have Capital Gains to pay at a later date when we sell, but I will cross that bridge when it happens in about 10 years time. We may possibly look to sell one in about 5/6 years time and then re-invest in another one that will maximise the potentail to get greater yield. The new one we are buying will create a higher yield (touch wood), if this is the case then we will look to do another one in a few years time. Baically we want to build a portfolio for our pension. Hubby's pension is crap and I have 3 frozen ones that are worthless, and there is no way I will put my money in a pension pot now, so for us its property, although I appreciate there is a risk to this but for me its a calculated risk, and we always do our research, this 2nd one has taken a year of research to make sure we are making the correct decision. So nothing is just on a wim, I expect a few of you reading this will think we are mad! (well I am).
Yes we have thought about that one but the mortgages are in our name so don't know if they are transferable or not, or whether we could transfer the land registry to a LTD co name? This is driving me mad, I am sure there is a simple answer and plenty of people do it but I just don't know the answers and don't want to regret my decision further down the line.
I think I need to go an tap up an accountant on this one, I seemed to be going round in circles!
Many thanks Sheila, its certainly food for thought.
Joint Tennant or Tennant in Common define how you both own the house.
As Joint Tennants, you both own the house and on the first death, ownership will automatically pass to the survivor - your wills can not change that. As Tennants in Common, you both individually own a share of the house - normally 50/50, but the split can be anything you want. In your will, you can then gift this share to whoever you wish.
You said 'we are 'joint tennants' on the Will' - the wills themselves shouldn't make any mention of how the properties are owned. If as you imply, your wills leave everything to the survivor, then the ownership of the properties should have no impact - just that the paperwork will be different.
On a joint mortgage, you would both be responsible for the loan - I'm not familiar with the concept of a 50/50 mortgage.
I have breifly looked at this before, and my understanding is that regardless of any agreed ownership share, or whether joint or common tenant, married couples, and those in civil partnerships are deemed to own property on a 50/50 basis, and income derived from the property is also devided equally. There is a form that can be filled in ( form 17 under ITA/S837) and sent o HMRC but I think there would need to be extentuating circumstances before they would agree to an un equal split of profits for a rental property.
Having read more detail, there may be a get out of jail card by forming a partnership, and detailing the distribution of profit in the partnership agreement. Seeb this link
Thanks Bill for the info, we have thought about a LTD co, but when it was just one house we decided against it, but now its 2 I don't know what to do! We are looking to increase the portfolio in a few years time.
At the moment the profits will be split 50/50 and other than forming a Ltd co I can't see a way round this one.
Maybe Shaun will be on here later to give his opinion?
If you hold it as tennants in common then it will depend on the % split - i.e. you match the income to the ownership %. If it is as joint tennants then the default will be 50:50.
We did look at Tennants in Common but I think because my husband is the breadwinner and earns a lot more than me, this would then weight it more towards him which we don't want, so it looks like to me that we should be Joint Tennants and have a 50/50 split. We are not talking huge profits at the moment anyway, but as time goes by there could potentially be quite a lot of profit, especially if we add to the portfolio at a later date. This has been driving me mad all weekend!
Tennants in common normally reflect the financial contribution the parties make. But I cannot see a specific statute reference to say that it must. Of course in justifying an income split it is easier if it does reflect this contribution but other factors may come into play. For example if you managed the property rather than your husband then you could argue that you would have a higher % share in it than that just based on the proportion of the purchase price paid.
To be honest Hal we both manage the property and will both manage the new one, we pay an agency to do find a tennant, then we do the rest ourselves as they are both fairly local. I think we are both better leaving it as Joint Tennants which is what the Solicitor thought it would be. why I was querying it was someone told me I could do it, and it wasn't the accountant from down the pub! It was a qualified person, but looking into it abit more I don't think we can.
