Beneficial Trust to wife now tax is going to bite?

by Readers Question

8:06 AM, 2nd March 2016
About 3 years ago

Beneficial Trust to wife now tax is going to bite?

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Beneficial Trust to wife now tax is going to bite?

With restrictions mortgage tax relief coming in I will end up with income well over £100,0000. All my properties are currently in my name. Am I right in thinking I should make a declaration of trust giving my wife a proportion of my income and file form 17 to HMRC to do so. trust

I believe this is the easiest way to go about things. As the trust is with my wife rather than say a company reading between the lines it looks that it is best to keep it between us and HMRC and not inform mortgage lenders.

I appreciate that may be against their T&C’s but I believe it is common practice when trust is only between you and spouse. I presume SDLT is still payable on the loan secured on property and so therefore need to do before April so as to have zero liability.

Any advice greatly appreciated especially how common this is and whether mortgage company informed

Thanks

Steve



Comments

Neil Patterson

8:09 AM, 2nd March 2016
About 3 years ago

Dear Steve,

Please see our page and website on this subject: Ownership restructuring for tax purposes >> http://buytoletconveyancing.co.uk/declaration-of-trust/

It is very common for properties to be owned by just one person, or indeed on a Joint Tenancy basis where the property was purchased by more than one person, e.g. two brothers or a husband and wife. Sometimes this is not tax efficient in terms of splitting sale proceeds or rental profits and often causes issues in divorce too.

Changing the legal title is the best known way to deal with this problem but it is rarely the most efficient, especially if you already have a mortgage in place that you do not wish to disturb, not to mention costs.

A Declaration of Trust enables the ownership of equity and rental profits to be adjusted and legally documented without disturbing the legal title or existing mortgage arrangements. For example, the share of ownership can be adjusted or a spouse can be added. In many cases the cost of such planning is returned many times over in terms of tax savings.

Mark Alexander

8:57 AM, 2nd March 2016
About 3 years ago

Hi Steve

By 2020 you will each be able to earn £50,000 and pay basic rate tax so if your incomes from all sources (plus your BTL mortgage interest) are less that £100,000 between you then you will pay no additional tax by splitting the beneficial ownership as you have suggested.

However, if your taxable incomes including BTL mortgage interest are greater than £100,000 you may wish you consider additional or alternative tax planning opportunities.
.

Kevin Thomson

19:26 PM, 2nd March 2016
About 3 years ago

is it true as Steve suggests that:

'SDLT is still payable on the loan secured on property and so therefore need to do before April so as to have zero liability.'?

if SDLT is payable in this situation then it will be payable now, and an extra 3% due from 1st April?

But how would SDLT be payable at all if the property is already bought? Plus I didn't think transfers between spouses would attract taxes like this?

Mark Alexander

20:41 PM, 2nd March 2016
About 3 years ago

Reply to the comment left by "Kevin Thomson" at "02/03/2016 - 19:26":

I recommend you to take professional advice as there are too many considerations for a forum and matter regarding tax are so vital to get absolutely right.

Professional advice also comes with insurance.
.

steve gilbert

12:45 PM, 3rd March 2016
About 3 years ago

Thanks all for advice. I understand the benefits of what I want to do and the mechanics. I also understand a belt and braces approach is to contact the lender. However this can delay things increase costs and complicate things. I suppose I wanted to know off the record if using a beneficial trust to wife and not notifying mortgage lender is quite common which I suspect it is and that in reality this situation still fares well either because the mortgage company never know or they just are not too concerened to find out. I am not asking for advice or a definative answer just a general feeling on the approach many take. It seems to me this carries low risk of lender finding out but huge consequences if they take action. Any thoughts?
Cheers

Grumpy Doug

17:34 PM, 3rd March 2016
About 3 years ago

Hi Steve. As Mark says, professional advice heartily recommended. My experience? My mortgage broker left my wife off a mortgage application a few years ago which only came to light when we went in to sign all the paperwork at the solicitor. We proceeded with the sale, and then did a declaration of trust a few weeks later (50 / 50). All I can say is my solicitor at the time was a real stickler for detail and he wasn't fazed at all. Lender wasn't notified as part of the process and only cost me about £70 at the time. Since then, the property has been remortgaged and all now present and correct

steve gilbert

17:52 PM, 3rd March 2016
About 3 years ago

Thanks Grumpy Doug this is what I suspected that these things happen all the time without cosequence It was just in these strange times I did not want to risk, to any high likelyhood, all my mortgages. But you have reassured me

Puzzler

23:36 PM, 3rd March 2016
About 3 years ago

I could be wrong but believe SDLT is payable on purchase not loan ...so nothing to pay in your situation - but please get professional advice

Alex Piggott

8:08 AM, 5th March 2016
About 3 years ago

I too will be taking this approach far cheaper and easier if your wife is a low earner than the other methods. Obviously everyone's situation is different. No sdlt tax to pay as far as I have been informed.

Ahmad Jibril

15:58 PM, 5th March 2016
About 3 years ago

I researched Declarations of Trust for myself in the past. Below is the best explanation I have found:

http://www.westbury.co.uk/westbury-blog/using-declarations-trust

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