The letting of a jointly-owned property in itself does not give rise to a partnership, so what does?
A person may own a property jointly that is let out as part of a partnership business. This may arise if the person is a partner of a trading or professional partnership which also lets out some of its land and buildings. A less common situation is where the person is in a partnership that runs an investment business which does not amount to a trade, but which includes or consists of the letting of property.
When is there a property partnership?
The letting of a jointly-owned property in itself does not give rise to a partnership – and indeed a partnership is unlikely to exist where joint owners simply let a property that they own together. Whether there is a partnership depends on the degree of business activity involved and there needs to be a degree of organisation similar to that in a commercial business. Thus, for there to be a partnership where property is jointly owned, the owners will need to provide significant additional services in return for money.
Separate rental business
A partnership rental business is treated as a separate business from any other rental business carried on by the partner. Thus, if a person owns property in their sole name and is also a partner in a partnership which lets out property, the partnership rental income is not taken into account in computing the profits of the individual’s rental business – it is dealt with separately.
Further, if a person is a partner in more than one partnership which lets out property, each is dealt with as a separate rental business – the profits of one cannot be set against the losses of another.
Kate has a flat that she lets out. She is also a partner in a graphic design agency, which is run from a converted barn. The partnership lets out a separate barn to another business.
Kate has two property rental businesses. One business comprises the flat that she owns in her sole name and lets out, and the partnership rental business consisting of the barn which is let out as a separate rental business. This is a long-term arrangement.
Kate must keep her share of the profits or losses from the partnership property business separate from those relating to her personal rental business. She cannot set the profits from one against losses from the other. They must be returned separately on her tax return.
Partner note: HMRC’s Property Income Manual at PIM1030.
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