What to do with my Buy to Let property now I’m married

by Readers Question

11:10 AM, 6th June 2017
About A year ago

What to do with my Buy to Let property now I’m married

Make Text Bigger
What to do with my Buy to Let property now I’m married

I’ve just got married and I’m wondering if this changes how I should manage my buy to let property.

I own a buy to let property with a mortgage (both solely in my name). The property is worth approximately £350k and the mortgage is £262,500 and 75% LTV – the monthly mortgage payment is about £600 and the rental income is £1425. I currently pay tax at 40%. I have also just got married, my wife is a full time mother looking after our children and has no income.

In order to provide my wife with some financial independence I’m wondering if there are ways I can gift some of the property to her and the associated rental income. This is also attractive for me with the new landlord tax rules on mortgage interest relief that are now here. My wife doesn’t have any other income and also doesn’t have a good credit record as such she is unlikely to get a mortgage on her own and it may also be hard for us to get a joint mortgage.

Reading articles on line I see there are a lot of things to consider including CGT, Stamp Duty and income tax.

What options do I have?

Neil



Comments

Neil Patterson

11:21 AM, 6th June 2017
About A year ago

Hi Neil

Congratulations 🙂

You could consider a declaration of trust to transfer some of the beneficial interest to your wife.

There is no CGT between spouses however as there is a mortgage and hence beneficial interest if you transfer a percentage greater than £40,000 in value you would run into incurring stamp duty.

Please see our tax planning page >> https://www.property118.com/tax/

And Declarations of Trust page >> https://www.property118.com/declaration-of-trust/93073/
"HMRC charge tax on the beneficial ownership of rental profit and capital growth from rental properties, HOWEVER, mortgage lenders take their security against legal ownership. It has been possible to split legal and beneficial ownership of property since the days of the Christian Crusades.

There are three primary tax reasons for creating a partnership by splitting beneficial ownership on rental properties using a Declaration of Trust:-

To fully utilise more than one nil rate band and basic rate tax allowance
To utilise more than one annual CGT personal allowance when selling property
After a minimum of three years of submitting partnership tax returns a business partnership can be incorporated without SDLT becoming due (schedule 15 Finance Act 2003) "

Mark Alexander

11:26 AM, 6th June 2017
About A year ago

Reply to the comment left by "Neil Patterson" at "06/06/2017 - 11:21":

I concur
.

Paul Green

20:43 PM, 6th June 2017
About A year ago

Write a PRENUP as soon as possible as your married .....Or a Living together Agreement if cohabitants. To protect your wealth.

http://www.advicenow.org.uk/file/2304/download?token=4MdVJyCa

Neil Smith

8:47 AM, 7th June 2017
About A year ago

Thanks Neil.

A couple of questions on your reply. Firstly the £40,000 is this of the purchase price or current value? Also is this of the whole value or just the mortgage portion? E.g. assuming it is based on the current value can I transfer £40,000 to my wife (11.42%) or could I transfer £87,500 Equity + £40,000 = £127,500 (36.4%)? Is this something that can only be done once per property or does it renew? Can I give her £40,000 every year until she has 99%?

Then if I only gift her one of these percentages I presume she is then responsible for that percentage of the mortgage interest and puts that on her tax return? Is this true even though the mortgage is still fully in my name?

So at say 11% she would receive rent of £1425 * 11% = £156.75 and be responsible for 11% of the mortgage £600 * 11% = £66

Neil

Mark Alexander

10:02 AM, 7th June 2017
About A year ago

Reply to the comment left by "Neil Smith" at "07/06/2017 - 08:47":

Hi Neil

Neil Patterson has asked me to jump in to answer your questions.

The £40,000 is the consideration, in your case it would be £40,000 of the mortgage balance expressed as a percentage of the entire mortgage and then applied to the percentage of the value of the property transferred. I suggest a round figure of 15%.

Your wife would then put 15% of the mortgage interest on her tax return.

If you then create a partnership you can allocate as much of the rental profit to you as you wish. This is because partnership profits are allowed to be allocated disproportionately between people.

The remaining 85% of the mortgage interest would have to be declared on your tax return.

There's nothing to stop you transferring another 15% of beneficial interests to your wife next year though so far as I'm aware, or every year for that matter.
.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Patrick Collinson has got it wrong yet again!

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More