Rental income assessed on spouse

Pangur

I jointly own a residential rental property with my wife. Up to now we have split the net rental income equally on our tax return. As my wife is not using all her standard rate band I'm wondering if we can attribute all the net rental income to her, thereby moving my portion (which has previously been taxed at the higher rate) to lower tax rate.

Any advice appreciated!!

Dixie Chick

Pangur wrote: »

I jointly own a residential rental property with my wife. Up to now we have split the net rental income equally on our tax return. As my wife is not using all her standard rate band I'm wondering if we can attribute all the net rental income to her, thereby moving my portion (which has previously been taxed at the higher rate) to lower tax rate.

Any advice appreciated!!

When you say "our tax return" are you jointly assessed? If so it doesnt make a difference what way you split the income

Ticktactoe

Pangur wrote: »

I jointly own a residential rental property with my wife. Up to now we have split the net rental income equally on our tax return. As my wife is not using all her standard rate band I'm wondering if we can attribute all the net rental income to her, thereby moving my portion (which has previously been taxed at the higher rate) to lower tax rate.

Any advice appreciated!!

If your jointly assessed the above should happen automatically instead of you 'attributing' any portion etc. It sounds like you are separelty assess and submit a form11 each. If that is the case i would reconsider your taxing arangment and maybe change to been joint assessed.

TaxingTimes

If the house is in joint names, the the rent should be split equally fo tax purposes.

If you want your wife to be assessed on all the income, the house would need to be transferred into her name - this could cause more problems that it would solve!

Ticktactoe

TaxingTimes wrote: »

If the house is in joint names, the the rent should be split equally fo tax purposes.

If you want your wife to be assessed on all the income, the house would need to be transferred into her name - this could cause more problems that it would solve!

Jointly assessed husband and wife means that both incomes are considered as one income therefore splitting rental income makes no difference.

Sand Wedge

Jointly assessed husband and wife means that both incomes are considered as one income therefore splitting rental income makes no difference.

Sorry Ticktactoe, this is not how the tax system works. In addition if husband uses up all his cut off in other employment and his wife does not, then it would be beneficial to have the rental income in the spouses name as it would lower the amount of income asessed at the marginal rate i.e. 41%

Ticktactoe

Sand Wedge wrote: »

Sorry Ticktactoe, this is not how the tax system works. In addition if husband uses up all his cut off in other employment and his wife does not, then it would be beneficial to have the rental income in the spouses name as it would lower the amount of income asessed at the marginal rate i.e. 41%

But joint assessed the wifes extra rateband is automatically transferred over to the husband. As we are talking about rental income it means that a form 11/11E is submitted and therefore its for a past year i.e say submitted now it would be for 2008. In a review or assessment, if couples are joint assessed ratebands and credits (excluding certain credits) transferr automatically as income is assessed as one.

Sand Wedge

Tax Rates and Tax Bands

Tax rates and bands applicable to your personal circumstance in tax year 2008 and tax year 2009 Personal CircumstancesTax Year 2008 Tax Year 2009 Single / Widowed without dependent children€35,400 @ 20%, Balance @ 41%€36,400 @ 20%, Balance @ 41%Single / Widowed qualifying for One Parent Family Tax Credit €39,400 @ 20%, Balance @ 41% €40,400 @ 20%, Balance @ 41% Married Couple - one spouse with income €44,400 @ 20%, Balance @ 41% €45,400 @ 20%, Balance @ 41% Married Couple - both spouses with income €44,400 @ 20% (with an increase of €26,400 max), Balance @ 41% €45,400 @ 20% (with an increase of €27,400 max), Balance @ 41%

Note: The increase in the standard rate tax band is restricted to the lower of €26,400 in 2008, €27,400 in 2009 or the amount of the income of the spouse with the lower income. The increase is not transferable between spouses.

The increase in the band is not transferable between spouses i.e max husband can get at 20% is 44,400 in 2008, if spouse has no income then they do not get the extra 26,400.

Ticktactoe

Sand Wedge wrote: »

[/size]The increase in the band is not transferable between spouses i.e max husband can get at 20% is 44,400 in 2008, if spouse has no income then they do not get the extra 26,400.

Thanks for putting it in bold, cos i wouldn't be able to see it otherwise!
Im going on the assumption from what the poster said is that his spouse does have income.

Tbh, more info is needed.

Sand Wedge

The OP has already said that he is paying tax at 41% on his share of rental profit while his wife is only paying at 20%.

mickbyrne

The individualisation of the tax system introduced by Mr. McCreevy when he decided that everyone should work and no one stay at home to mind their children is what is causing the problem in this case as indicated by sand wedge. If the rental income was transferred to the spouse it would only be taxed at 20% as her income would appear to be less than the €26,400 increase in cut off where both spouses are working.
The answer to Pangurs question is consistency. You can’t chop and change how you treat your income year to year just to suit your self. You need to be consistent. If you have been splitting this income then you need to continue to do so.

Pangur

Thanks, Posters! I believe taxingtimes is correct ie. If I want all the rental income to be assessed on my wife I would have to transfer the property into her sole name. This is easy to do and has no tax consequences as transfers between spouses can be done tax free. However, we'd probably run into difficulties claiming full deduction for the interest on our mortgage as that is in joint names. As my wife looks after the property I believe it is reasaonbale for her to charge me a management fee, thereby transferring at least part of the rental profit to her.

mickbyrne

You would need to be careful about the charging of management fees. Management fees are allowable but make sure that you do them on an 'arms length' basis. Aslo you will need to register your wife a self employed for her to charge these to you. From experience with revenue audits, it is not something that they are to keen to see. The following link tells you most of what you need to know:

http://www.revenue.ie/en/tax/it/leaflets/it70.html

Bobby1984

Transferring property between spouses, charging management fees to each other, no offence but i think someone has lost the run of themselves!

Have you thought about this seriously? Do you know exactly how much this is going to save you and is it worth the potential trouble that you may run into in the future. What happens if she dumps ur a$$ and leaves you sitting on the side of the road (i am such a hot marriage prospect) when you transfer over the house. What happens when the house if being resold? There is only one annual exemption against the gain. From a CAT point of view what happens when you plan on passing it on to a family member (for example your parents). They are total strangers to her so it would be group C threshold whereas it would be group A from you ie they would have to pay way less tax. Obviously what i mention above probably wont happen and you will have different plans for the property but what i wanted to do was to get you thinking about it seriously.

There is more to be looked at than the short term. Once you have thought about these things then you will be in a better position to make a decision. Best of luck with whatever you decide :cool: