Slash Your Rental Income Tax by Splitting Ownership: A Guide for Married Landlords

Managing rental income tax remains a major concern for landlords — but if you're married or in a civil partnership, there's a proven tax-efficient strategy worth considering: transferring part of your property to your spouse. At Talwar Accountant, we help clients take advantage of this approach to lower their annual tax bill without triggering Capital Gains Tax (CGT) or Inheritance Tax (IHT).

Why Transfer Property to a Spouse?

With income tax rates at 20%, 40%, and 45% for 2025/26, the tax savings from income splitting can be substantial. If one partner is a higher-rate taxpayer and the other is in a lower band — or has unused personal allowance — transferring a portion of the property can shift rental income into the lower-taxed name.

The standard Personal Allowance remains £12,570 for 2025/26, meaning a spouse with no other income can receive this amount tax-free. For example, sharing £20,000 in annual rental profits equally — where one spouse has no other income — could save up to £4,000 a year.

This approach is especially valuable for landlords with properties held in personal names and complements other tax-saving strategies available to property investors.

Capital Gains Tax (CGT) Implications

Transfers between spouses or civil partners who live together are exempt from CGT. This means you can transfer part or all of a rental property without triggering a taxable gain, even if the property has increased significantly in value.

For instance, transferring a 50% share in a property worth £200,000 — originally bought for £100,000 — would normally involve CGT on a £50,000 gain. But between spouses, this transfer is completely tax-free.

Inheritance Tax (IHT) Benefits

Spousal transfers are also exempt from IHT. More importantly, splitting property ownership ensures both spouses can use their individual IHT nil-rate bands (£325,000 each), helping to reduce the estate's taxable value over time. This forms part of a wider estate planning strategy — particularly crucial for landlords with growing portfolios.

How to Transfer Property Tax-Efficiently

To transfer property ownership in a tax-efficient way:

• Assess your tax positions: Review both spouses' current and projected income levels to determine the optimal ownership split.
• Use proper legal documentation: You'll need a deed of trust or solicitor to change the beneficial interest and update the Land Registry records.
• Report income correctly: Each spouse must report rental income according to their ownership share when filing Self Assessment returns.
• Submit Form 17: If income isn't split 50/50, notify HMRC using Form 17 to formalise the new ownership ratio.
• Prepare for digital reporting: MTD for Income Tax will be introduced for landlords with income over £50,000 from April 2026, so ensure your record-keeping aligns with the updated ownership structure.

Important Considerations for Landlords

If the property has a mortgage, transferring part of it may trigger Stamp Duty Land Tax (SDLT) based on the outstanding debt being transferred. Always check with your lender first — ensure any changes don't affect your mortgage terms or breach lender restrictions.

Clear documentation and accurate record-keeping are essential. HMRC may question inconsistencies, especially as digital reporting requirements come into force for higher-income landlords from April 2026.

Real Example: How One Couple Cut Their Tax Bill

Sarah and James jointly owned a rental property generating £18,000 per year. Sarah was a higher-rate taxpayer (40%), while James earned below the personal allowance threshold. By transferring 60% of the property to James through a deed of trust and submitting Form 17, they reduced their combined tax liability from £3,600 to £1,440 — saving £2,160 annually with no CGT or IHT implications.

Plan Your 2025/26 Tax Strategy

Spousal transfers can be a simple but highly effective way to reduce tax burden. However, they must be executed properly to achieve the intended benefits and comply with current regulations.

For personalised advice tailored to your situation and the latest 2025/26 tax rules, speak with Talwar Accountant — we'll help you structure ownership to maximise your tax efficiency for the current tax year and beyond.