Combining tax relief on property income and self employed income

My unmarried partner and I own a property as tenants in common which we rent out. Although our deed of trust has her owning 66% of the property and me owning 33%, I collect all of the rental income and therefore am solely responsible for the tax on the rental income. When I look at how to calculate the amount of tax relief available to me on the rental income, it looks like I would pay zero tax on the rental income. I want to check this is correct. As I understand it, the amount of tax relief available is 20% of whichever the lower figure is between the total rental profit (rent minus any allowance expenses), the total income (profit minus personal allowance), or finance costs. We currently have a very high mortgage and are making a loss on the rent. The interest we pay on our mortgage annually is over £30k, but the amount we charge annually for rent is below that amount. Therefore, the lowest figure of the three above will be the adjusted total income (rent, minus allowance expenses, minus any personal allowance). I am also self employed. I would usually apply my personal allowance to my self employed income first. So if I earn £20k in one year from self employment, after using my personal allowance of £12.5k, I will be due to pay 20% tax on the remaining £7.5k. Because I have already used my personal allowance against my self employed income, when I come to calculate the tax I owe on my rental income, it comes to zero. First, I take the profit earned from rent (rent minus allowable expenses). Let's say this is £24k. Because I have no remaining personal allowance, since I have used it against my self-employed income, my adjusted total income remains £24k. The tax relief I am eligible to receive then, is 20% of £24k, which is £4.8k, which is also equal to the amount of tax that is due on the rental income (as I am a basic rate taxpayer). So, it seems that when I complete my tax return, I will pay: 20% of my self-employed earnings above the personal allowance, and no further tax on my rental income because the tax relief I am eligible for is equal to the amount of tax due. Is this correct? Thank you!

Hi,

As you both own the property you both need to declare the rental income received unless you have supplied an alternative deed of trust as to who is the owner of the beneficial income.  

You are correct in that your personal allowances will be used against your self employment first.  

As the mortgage is now given as a relief, this is restricted to 20% on the profit made and if it covers the actual tax due on the profit then nothing else would be due on the property income. You can see guidance here:

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-case-studies

Thank you.

Hi, thanks for your response, that's really helpful. However, I am confused by your saying that my partner and I both ned to declare the rental income recieved. I asked whether I could recieve 100% of the rental income and pay 100% of the tax in these forums previously, and was told by the agent that that was correct. We are unmarried, and own the property in a 2:1 ratio, but have agreed that I will recieve all the rental income. See here for reference: https://community.hmrc.gov.uk/customerforums/ifp/79893721-4068-ee11-a81c-0022481abaf7 I also referred to this thread posted by another user: https://community.hmrc.gov.uk/customerforums/ifp/688cdd6b-6189-ee11-a81c-000d3a86dfe6 I also found the below parapgraph in the guidance here: https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030 'Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed.'. This seems to say that joint owners can agree a different division of profits and losses, which would then be the division used for tax purposes. I'd be grateful for some clarity on this. Thanks so much!

Hi Ella Harriss,
Form 17 is only available to spouses and civil partners, to allow them to opt away from the default 50/50 split to that of their actual split of ownership, as declared on a deed of trust.
A jointly owned property by two or more people, who are not business partners, married or civil partners, must be taxed on the actual split of ownership.
Thank you. 

Hi, Thanks for your response. I am confused because it seems like other HMRC agents are giving conflicting advice on these forums. Someone else has asked similar question on a different thread, and the HMRC agents responding to that thread have said the below things, which state that joint owners can agree a different division of profits and losses than the shares owned in the property: 'As per the guidance held at PIM1030 if you own a joint rental property but are not married or in a civil partnership with the joint owner then you are not required to obtain a Deed of Trust or any other paperwork. The rental profits can be split in any way that the two of you agree. The share of any profit or loss arising from a jointly owned property will normally be the same as the share owned in the property being let. Joint owners can, however, agree a different division of profits and losses and so the share of the profits and losses can differ from the share in the property' (Source here: https://community.hmrc.gov.uk/customerforums/ifp/688cdd6b-6189-ee11-a81c-000d3a86dfe6) I also read the official guidance PIM1030, which states that: 'where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed'. My partner and I are not married nor are we letting the property out as part of a partnership business. Therefore, surely, as it states in the guidance, we can agree a different division of profits of losses, which will be different from the our shares in property. Look forward to hearing from you again!

Hi Ella Harriss,
Yes as you are not in a business partnership please follow the guidance at PIM1030. “the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let.  
But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed.”  Please draw up an agreement in writing & keep it in a safe place.  This might need to be sent in as evidence of the split but only if we ask to see this.
Thank you.