Typically, families tend to put a rental property in the name of the person with the higher income. This choice is rooted in the belief that initial rental losses associated with negative gearing are best assigned to individuals in higher tax brackets, allowing for more significant tax savings. 

However, what many fail to consider is the substantial capital gains tax liability for those already in higher income brackets. 

Do you and your partner have different incomes? In modern times, most families have two income earners, leading many to opt for joint property ownership with equal shares. It’s like “hedging their bets.” 

For instance, friends who jointly invest in properties often bring diverse financial strengths to the table. One might contribute a sizable deposit, while the other possesses a robust income to cover repayments. Throughout ownership, both partners share half of the rental losses, and when the property is eventually sold, the capital gain is also equally split. 

While this might slightly reduce year-on-year tax savings, the overall tax burden over time tends to be less than if only one person owned the property. This helps mitigate the overall tax risk associated with property ownership. 

But beware of potential complications! While joint property ownership can be advantageous, it does come with its complications. The loan, income, and expenses are typically divided equally for tax purposes, regardless of the actual financial contributions. 

If the investment property is co-owned with someone other than your spouse, disagreements may arise on when to sell, especially if each party has different tax profiles at the time. 

Before investing, ensure all parties have clearly defined investment goals and decide on a course of action if one wants to sell while the other doesn’t. Disagreements, particularly regarding the use of equity, are common among friends who invest jointly and can lead to one party buying out the other or selling the property. 

Establishing a clear exit strategy from the beginning helps prevent these disagreements from straining your relationship. 

How do banks assess joint mortgages?

If you decide to buy an investment property with someone else, banks will assess your joint mortgage application slightly differently: 

• A person with a high income can compensate for the other party’s inability to afford their share of repayments. 
• A person with a good credit history won’t offset the impact of the other party having poor credit unless their income isn’t required to prove that you can afford the debt. 
• Credit scoring is generally more favorable than for a single applicant. 
• Each borrower’s asset position is assessed differently depending on the lender. 

Apart from these considerations, you’ll need to provide the standard documentation required for a mortgage application for an investment property, similar to what would be needed for an individual application.