Over many years a number of our clients have acquired a second property for the purpose of investment, and letting on a Shorthold Assured Tenancy.
In the event of such an investment property being acquired jointly, for the purpose of improving its value by renovation prior to letting, the expense should be divided equally and cannot simply be allocated in the most tax efficient manner in which usually means to the partner paying the higher level of tax.
Of further interest, partners/couples who have decided to move in together as apposed to living in separate properties thus releasing one for the purpose of rental income should be aware that notwithstanding the fact that the rented property may only just be covering the mortgage payments, a profit may nevertheless be made and consequently when calculating such rental profit, only the interest element of the mortgage payment is an allowable expense.
Whilst a difficult area to discuss, it is important that divorce issues also be addressed. In the case of a divorce, a couple may have rented out their jointly owned matrimonial home with each then moving into smaller accommodation. Again, the rental profit will be taxable and will normally be split between both parties, based upon their respective shares in the former matrimonial home. A Declaration will have to be made with reference to the share of profit.
Lastly, one may need to consider the situation where a property has been bought for a child at university. In the event that either the son or daughter stays rent free, there will be no liability to tax.
However, should a rent-paying friend move in with them the situation quickly changes, notwithstanding the fact that the arrangement with the flatmates is an informal one. At that point in time, you are advised to get in touch with your accountant.