Can I utilise loss relief?
My wife and I own 100% of four UK properties (2 each) and my properties are making losses whilst my wife’s are okay. We want to utilise rental losses in a tax efficient way and not have to worry about capital gains tax, etc. Would my wife be able to transfer 100% of her property to me so that I can utilise my prior and present losses? Would the outcome be the same if my wife transferred 50% instead of 100%?
Arthur Weller replies:
If you look at www.hmrc.gov.uk/manuals/pimmanual/PIM4205.htm and www.hmrc.gov.uk/manuals/pimmanual/PIM4210.htm you can see that rental business losses can be offset against profits from the same rental business, either in the same year or carried forward to a future year. If you expand your rental business by obtaining new (profit making) properties while at the same time continuing your present rental business, then that is considered to be the same rental business, and the old brought forward losses can be set off against the new profits, for tax purposes.
But your wife would need to make a proper, bona fide transfer to you of the properties (or at least the beneficial ownership of the properties) for this to work.
The same would apply if she only transferred 50% of her properties to you, but then of course only 50% of the profits would be available to you for offset. If it is acceptable to you to receive only 50% of the profits, then an alternative is for her to transfer even a minimal amount of the properties to you, e.g. 5%. If you DO NOT send in a Form 17, since you and your wife together own the properties, then due to the 50:50 rule half the property income will be deemed to be yours for tax purposes, and consequently available to you for offset. See www.hmrc.gov.uk/manuals/tsemmanual/TSEM9800.htm.
Got a burning tax question?
Why not submit a tax question to our tax advisorsAsk a Question