Editor's note: This brief was summarised by The Property AI Team from a report by Property118. Read the original article for full details.
Spouse Partnership Could Soften Section 24, Property118 Reports
A report by Property118 examines whether a partnership with a spouse could soften the impact of Section 24. Where one spouse faces a substantial tax bill on the rental business while the other has spare lower-rate tax capacity, reviewing how the business is owned and its profits are shared can make a meaningful difference.
According to the report, a properly established partnership could allow profits to be shared 99:1. In the example given, that leaves the household £5,940 better off each year, before implementation and ongoing costs.
The article notes that a rental portfolio can produce a respectable income before tax and leave surprisingly little afterwards. For some couples, that pressure is made worse because the rental income belongs to the spouse who already has the higher salary or pension. The practical question raised is whether the couple's arrangements still suit the business and the life it is meant to support.
What HMRC Guidance Says
The report points landlords to HMRC's Partnership Manual, PM132400, which discusses taking a spouse or civil partner into partnership to make better use of tax reliefs. It includes the statement that "a partnership is not a sham merely because it is set up to save tax".
The same guidance explains that a partner's profit entitlement cannot simply be challenged by comparing it with the value of their work, as might happen with a salary. A spouse need not contribute their own capital or take an active management role to be a partner. The report adds that this does not approve every arrangement bearing the name "partnership", or settle every anti-avoidance question, and notes the guidance points readers towards the settlements legislation, which must be considered when income is shifted between family members.
Profit-Sharing Proportions
HMRC's PM137000 guidance confirms that partners can agree their profit-sharing proportions, and those proportions need not match their contributions of capital or effort, according to the report. Where one spouse has substantially more spare lower-rate tax capacity, an agreement allocating 99% of the income profits to that spouse and 1% to the other may therefore be worth considering. Equal sharing is not a requirement.
The report stresses that a 99:1 allocation is an illustration, not a prescribed ratio or an assurance of the best outcome for every household. The agreement must create genuine entitlements, and profits cannot be reallocated retrospectively after the accounting period has ended merely to improve the tax result. It also distinguishes income profits from capital ownership: a 99:1 profit split does not, by itself, determine who owns the properties or how capital proceeds will be shared.
Section 24 and Partnerships
Under the rules commonly called Section 24, individual residential landlords generally calculate taxable rental profits without deducting mortgage interest and other restricted finance costs, then receive a tax reduction subject to limits. For 2026/27, the report states that reduction is calculated at 20%. HMRC's PIM2054 guidance expressly confirms that the restrictions apply to individuals operating through a partnership too, so a partnership does not restore an unrestricted deduction for mortgage interest. Its potential benefit, the report says, is that some rental profit can legitimately become taxable on a spouse whose applicable rate is lower.
Source: Property118