Capital Allowances/Owner-Occupier Relief

Property in Joint Names Introduction

This article deals with the situation where property is acquired in joint names by a married couple but the expenditure on purchase is incurred by one spouse. This is frequently done to facilitate succession rights. Where the property qualifies for capital allowances or owner-occupier relief, the question frequently arises as to the amount of the allowance or relief to be given to each spouse.

General position regarding jointly owned property

Where property is jointly owned, capital allowances and owner-occupier relief are granted on the basis that each individual has incurred an equal amount of the expenditure on the construction, purchase etc. If an individual’s income for a year of assessment is not sufficient to absorb the capital allowances for that year the excess capital allowances are carried forward to the next year. In the case of owner-occupier relief, where an individual.s income for a year of assessment is not sufficient to absorb his or her share of the relief for that year the relief cannot be carried forward and is lost.

Married Couples

Where property is purchased in joint names by a married couple, who are jointly assessed, including a couple who opt for separate assessment within joint assessment, Revenue are prepared to grant relief, where claimed, to the spouse who incurred the expenditure on the construction, purchase etc., that is to the spouse who provided the funds.

Where the purchase of the property is funded partly by borrowings, the borrowings will generally be in joint names also. Revenue are prepared to treat this part of the expenditure as having been incurred by the spouse who makes the repayments.

The irrevocable written agreement of both spouses to this treatment will have to be provided to the Inspector, together with an irrevocable undertaking from the spouse to whom the relief is to be given to accept any balancing charge which may arise in relation to the expenditure.

This treatment will apply to returns submitted after the publication of this issue of Tax Briefing and to cases under enquiry. Cases which have already been settled will not be re-opened.

The new practice will not apply where the main purpose or one of the main purposes of the scheme or arrangement is the avoidance of tax.