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Where a husband and wife own property as 'tenants in common', i.e. each holding a distinguishable asset capable of independent transfer, etc., do readers consider that it is correct that each may be capable of charging differing amounts of rent for their half share of the property?
This is envisaged where the relevant property is rented to a limited company (owned by them) but where the object is to draw only sufficient rent to service borrowings and where those borrowings differ for the husband and wife.
Where a husband and wife own property as 'tenants in common', i.e. each holding a distinguishable asset capable of independent transfer, etc., do readers consider that it is correct that each may be capable of charging differing amounts of rent for their half share of the property?
This is envisaged where the relevant property is rented to a limited company (owned by them) but where the object is to draw only sufficient rent to service borrowings and where those borrowings differ for the husband and wife.
(Query T15,886) – Rent Collector.
I think that 'Rent Collector' should first look at the points raised from a different angle. The income from the property is the main point and, when this total has been decided, the next step will be to decide how it is to be split between the husband and wife as tenants in common.
Sections 282A and B, Taxes Act 1988 give the general rule: where a husband and wife are living together, income from jointly held property is treated as being received equally. This basis is also mentioned in paragraph 143 of the Revenue's Independent Taxation Manual on jointly held property:
'Declaration must reflect reality – A married couple do not have a general option to split joint income in any way they like. They can only depart from the standard 50:50 split where
* each spouse is in fact beneficially entitled to share other than 50:50 in the asset and the income and
* the beneficial share that a spouse has in the income is the same.
'Where both conditions are met, the couple can make a declaration to this effect. They are then taxed on their actual entitlements.'
Also in paragraph 126 of the above manual the difference between the holding of a property by husband and wife as joint tenants and as tenants in common is explained. In respect of the latter case, 'A husband and wife own an asset in common if each is entitled to a separate and identifiable share in the asset. The shares in which the asset is owned need not be equal. And the ownership of the capital may differ from each partner's entitlement to a share in the income. For example, a husband could own 60 per cent of the capital but be entitled to only 40 per cent of the income'.
Therefore in this case as the ownership of the property, and I assume their individual entitlement to income, is currently split 50:50 between husband and wife, then at present the standard 50:50 split applies. If the couple wanted, for tax purposes, to be entitled to receive rents from the company in an acceptable manner, then their individual ownerships of the property would need to be legally adjusted accordingly. – Goldstone.
It is necessary to distinguish between the position of the beneficial owners inter se and that of the owners of record as against the tenant.
In relation to the beneficial owners, each is treated for the purposes of Schedule A as entitled to his or her proportion of the net rents of the property. It is therefore possible for differential borrowing situations to be catered for since each beneficial owner will have a separate Schedule A business and the actual loan situation (irrespective of how, or indeed whether, secured) will be taken into account for that purpose.
It is not, however, possible to vary beneficial entitlement to the rent. This is because, since 1925, co-ownerships can only exist behind a statutory trust. Between 1926 and 1996 this was called a trust for sale. From 1997, it is called a trust of land. Although sections 12 and 13, Trusts of Land and Appointment of Trustees Act 1996 varied the position where one of the co-owners is in possession, no change was made to the underlying principle where the property is let.
This is that each co-owner is entitled to share in the rents of the whole, in proportion to his or her beneficial interest. Although not directly on this point, paragraph 42 of the Special Commissioner's decision in Jerome v Kelly [2001] SpC 284 is instructive. In that case property was sold by statutory trustees but the beneficial ownership changed between contract and completion. Dr Brice said: 'The purchaser is not concerned with the beneficial interests and can rely on the fact that the trustees can give a good receipt for the purchase money'.
English land law therefore prevents the husband and wife doing what is suggested. – WjdeS.
Extract from reply by 'JGH':
The whole idea of tenants in common is that the share they own is not distinguishable. When a house is owned 'in common', neither party can lay claim to the front door to the exclusion of another. Therefore the concept of two leases at the same or differing rents does not arise. All is not, however, lost. If the borrowings are actually to finance the acquisition, it will be sufficient to declare that the husband's and the wife's interests in the property are in the same proportions as the borrowings.
