In such circumstances, for tax purposes, all the rent will be taxed on the first individual. The marital status of the couple is immaterial.

Following its loss of the Jones v Garnett case on the settlements legislation, the Government recently announced the ways in which it plans to address income-splitting or shifting between married couples and family members.

However, the draft legislation published in the document 'Income shifting: a consultation on draft legislation' does not restrict the rules to trading or professional income. It simply refers to “distributions of a company, or profits of a partnership”.

Mr. Penneycard observed that:

“Neither the draft legislation nor the draft guidance from HMRC state that buy-to-let partnerships are excluded from the new rules. Although all of the examples given refer to ‘businesses’, with rental income increasingly taxed on a business footing there is a danger that the Government see these changes as an opportunity to raise extra tax from the property market."

“Of course, this could simply be a drafting mistake and, if it is, HMRC owe it to the taxpayer to make the point clear. However, I’m not so sure. The trend in recent anti-avoidance legislation has been to catch as much as possible and then for HMRC to issue guidelines, which have no weight in law, on what the rules are targeting. If the current draft legislation goes through un-altered, we are going to see a few interesting court cases on what constitutes a ‘partnership’ caught by the new rules."

He concluded:

“If the Government intends to catch what is a fairly common practice among couples letting properties, it will justifiably be accused of introducing another stealth tax. The UK property market does not need any more bad news at the moment and we shall certainly be seeking urgent clarification on this point as part of the consultation process. I urge the Government to set out clearly in the final legislation that these rules are not aimed at families investing in a few buy-to-let properties."