How to Manage Your Rental Income Intelligently

THE QUESTION

We are in the process of purchasing a property that we are planning to use as a furnished holiday let (it is already currently used as an Airbnb). 

We will be purchasing it in joint names.  My husband's income is close to tipping into the next tax bracket, whilst mine is far from it.  

I have been told that we would need a deed of trust to say that the taxable income from the property will be in my name i.e. 0% of the income for husband and 100% for me.  However, having looked at the government website it would appear that a deed of trust is not necessary for a furnished holiday let and only for regular rentals.  It would appear that for a furnished holiday let we can just decide between ourselves who's getting the income and pay tax as such. 

Am I reading it wrong? 

THE ANSWER

The simplest solution is to buy it jointly, but set it up on a 'tenants in common' basis rather than the normal 'joint tenants' basis.  I know you are the landlords/owners not the tenants but here 'tenants' is used in a different context.

Joint tenants, which is the default option, means that you and your husband own 100% of the property jointly, so any profits are deemed to apply on a 50/50 basis - which may well tip your husband into the next tax bracket.

Tenants in common allows you to nominate what percentage of the property each of you owns individually, not jointly - e.g. you own 90% and your husband only owns 10% - or any other percentage division you wish to apply. 

What is the difference here? if you own, say, 90% of the property, 90% of the profits are yours and only 10% are your husband's.  You can manipulate the percentages to maximise your tax bracket advantage and minimise your husbands tax bracket disadvantage.

Caveat:  I am not a qualified accountant so this is not tax advice, just general knowledge from my experience in the property market.

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