Property partners must declare more than their love

AFS Team·18 January 2013·3 min read
Property partners must declare more than their love
Breaking up is always hard for property investors who have the problem of agreeing how to split up tenanted homes – and now lawyers have made life even more difficult for landlords.

Financial stress often comes with a relationship breakdown, regardless of whether the partners are just in business together or romantically entwined.

However, new guidelines to solicitors from The Law Society is designed to help, but in many cases could make matters worse.

The advice suggests solicitors should encourage joint property owners to declare more than their love – by writing down their percentage shareholding of any property as a declaration of trust for filing at the Land Registry.

The reason, say the lawyers, is if the relationship breaks down, evidence of who owns what is easily available for dividing the assets.

That sounds sensible and the move has arisen from two recent court cases - Stack v Dowden [2007] UKHL 17 and Jones v Kernott [2011] UKSC 53 – in which joint owners disagreed on the details of property ownership, leaving the conveyancing solicitors as witnesses.

The Law Society’s conveyancing and land law committee chairman Jonathan Smithers said: “The note will direct solicitors to the practical implications of statements made in recent cases so that their clients can continue to receive the best advice possible.”

So, write down the details and the problem is solved. Not quite.

HM Revenue & Customs has a data link directly in to The Land Registry. The worry for many landlords is HMRC will match details from the declaration to tax returns – which could reveal many higher rate taxpayers owe more tax than they are admitting.

Why? Because many switch a larger share of rental profits to a partner paying tax at the basic rate if they have the chance, which means paying only half the tax on the same profit.

Best advice for student landlords in a higher rate/basic rate partnership with a joint property owner is sort out that pesky paperwork now to stop the tax man coming after you at a later date.