A simple and effective property tax strategy is to buy a property in multiple ownership in the form of a partnership.
Partnerships are very simple and effective.
But two crucial elements are that;
1. Your partner must not be in the higher tax bracket (currently 40%)
2. They must be completely trustworthy !
This is so important that it is worth repeating. THE PARTNER MUST BE TRUSTWORTHY.
If you buy in a partnership then the person must be someone you trust implicitly. i.e your spouse, mother, father, brother, sister, etc. This is not for any tax reasons, but simply good sound business practise.
As a rule, if you are a higher rate tax payer (currently 40%) then ALWAYS try to purchase with someone who isn't. And ideally with someone who pays no tax at all.
Property jointly owned by husband and wife is defaulted as a 50:50 split by the Inland revenue.
However, this is not the case between non-husband and wife. Because the property ownership is based on fact. If 'Jack' has funded 20% of the deposit & Bill has funded 80% of the deposit, the property would be split as 80:20 in Bills favour.
You need to understand exactly how to inform the Inland Revenue about this arrangement. Make an appointment with your accountant to discuss these issues or email me at email@example.com, if you are already in this position (or are thinking about it).
Better still if you have a non-income-paying partner.
In the 2008-2009 tax year, if your partner does not work, then the first £5,435 that your partner earns through property income will be exempt. In addition, the next 36,000 of income will only be taxed at 20%. Any income above that will be taxed at 40%. The upshot of that is if you pay tax at 40%, but have a 50:50 split with a non-working partner, then on the basis of an equal profit of say £5,000 from property income, you will pay £2,000 less in tax on a yearly basis. Simply by having the property jointly owned.
Don't forget, tax bands may change, so your earnings could be greater than this.
To be continued...........