In a cautionary tale for ‘buy-to-let’ property owners, an accountant who was hit with demands for back taxes and penalties in respect of rental profits has failed to convince the First-tier Tribunal that his wife, a basic rate taxpayer, was solely entitled to all the income from their jointly owned property portfolio.

The married couple owned 20 properties, which had been purchased using their personal savings and bank loans. As the wife did not work and had no other source of income, the husband’s name had appeared on the title deeds as joint owner in order to facilitate the obtaining of mortgage finance.

The rental profits generated by the portfolio were, for a number of tax years, declared as income on the tax returns of the wife alone. The couple claimed that this was justified by the facts that she bore the entire responsibility for managing the properties and the rent was paid into a bank account in her sole name. It was submitted that, having put in all the work, she was entitled to all the income from the properties.

However, HM Revenue and Customs argued that, by virtue of Section 836 of the Income Tax Act 2007, the husband and wife should each have been taxed on half of the rental profits. On that basis, retrospective tax demands and under-declaration penalties were raised on the husband.

In dismissing the couple’s appeal, the Tribunal noted that where properties are jointly owned, in whatever proportions, by cohabiting spouses or civil partners, the law presumes equality of beneficial ownership for Income Tax purposes. The property portfolio was a joint venture between the couple and there was no evidence that the husband had intended to surrender his beneficial interest to his wife.

In such circumstances, the duties undertaken by the wife in managing the properties and the payment of the profits into her bank account were irrelevant. The Tribunal found that the couple’s joint legal title to the properties was decisive and that the 50:50 rule applied. The penalties levied on the husband were also justified given his lack of reasonable care in the compilation of the relevant tax returns.


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