BTL property tenants in common

Hi My sister and myself have a BTL property and we are tenants in common and have a 50/50 ownership split as stated on form TR1. However I receive all the rental income and pay all the expenses including the mortgage. Will I be liable to pay all the income tax on the rental profits or is she liable to pay 50% of the tax? thanks

Hi,
 

Thank you for your question. I would advise you that whoever has the beneficial ownership of the property has the beneficial ownership of the income. Please see the guidance at TSEM9160 - Ownership and income tax: legal background: ownership - income follows property - HMRC internal manual - GOV.UK (www.gov.uk). So you would each declare 50% of the income and expenses. This can be varied by way of a valid declaration or deed of trust. Please see the guidance at TSEM9170 - Ownership and income tax: legal background: ownership income follows property - variation - HMRC internal manual - GOV.UK (www.gov.uk)  . Thank you .

Hi Thank you for your reply. I have seen another post on this forum where HRMC states it is fairly common to transfer beneficial ownership via a declaration of trust whilst keeping legal ownership and this would be sufficient for tax purposes so that answers my initial query. With regard to the declaration of trust, does it need to be drafted by a solicitor or can my sister and I sign a "DIY agreement" between ourselves detailing the terms of the transfer of beneficial ownership and does the agreement require a witness to sign also? I understand that we don't have to submit the declaration but retain it if needed in the future. Thank You

Hi soconfused,
Thank you for your further question.
I would advise you that if the rental property is held with your sister (and not your spouse or civil partner) then the declaration of trust would not have to be drafted/witnessed by a Solicitor and could be created by yourselves.
However you may wish to use a conveyancing solicitor to ensure that the deed has been drafted in the correct format and will stand in a court of law if required in the future. 
Thank you.