Can spouse claim mortgage interest as an expense

by Readers Question

10:16 AM, 6th April 2016
About 3 years ago

Can spouse claim mortgage interest as an expense

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Can spouse claim mortgage interest as an expense

I own a property in sole name which is rented out with a mortgage again in my name. I am setting up a Declaration of Trust of beneficial ownership so my wife will own 99% and I will own 1% as she is not working and will be looking after the rental property (and one she owns in her own name).confused

My wife will be paying the mortgage on the property in my name from her bank account (the same account the rent will be paid into) but can she claim the Mortgage costs as an allowable expense on her tax return.

Please only respond if you are pretty certain of the answer as I’m confused enough already 🙂

Regards
Bill



Comments

David Atkins

11:21 AM, 6th April 2016
About 3 years ago

Having just completed one of these on Monday I feel qualified to comment :). My deed doesn't mention shares of ownership just that I am holding the title as trustee and my spouse as beneficiary. The solicitor also mentioned that it does need to involve the mortgage provider as long as they are still recorded as first charge.

steve gilbert

11:36 AM, 6th April 2016
About 3 years ago

I have just completed 12 of these and started the thread you commented on before. It is a minefield of misinformation and open to challenge from HMRC. However I finally got someone who new what they were doing, at a price. The % split is irrelevant as is who pays the mortgage. The mortgage company also does not need to be informed. However this is important a note of interest needs to be made on the deeds. This will not say what your wife's interest is and mortgage companies rarely enquire but without this note HMRC have succesfully argued that split only for tax purposes and revert to your full ownership. I am 100% on this. With regards to who pays the mortgage it is kind of irrelevant, the profit split must be shown as on deed after all expenses. You must be able to demonstrate that the entitlement as in the trust reflects real life. Furthermore with interest rate relief and who claims on their return again all expenses follow the DoT split. Easy really all costs, expenses and profits must reflect the Dot split and you must be able to demonstrate as such

David Atkins

12:55 PM, 6th April 2016
About 3 years ago

Hi Steve, "However this is important a note of interest needs to be made on the deeds." is this note regarding the mortgage company?

Also Steve mine says 'The trustee is desirous of holding the property subject to the Registered Charge UPON TRUST for the beneficiary absolutely'.

Cheers

steve gilbert

12:59 PM, 6th April 2016
About 3 years ago

Hi David no this has nothing to do with mortgage company. There must be a charge noted on deeds at land registry. It merely notes your wife has an interest but does not specify what. You are still the legal owner for all purposes

Mark Alexander

13:37 PM, 6th April 2016
About 3 years ago

Hi Bill

I am very confident what I am about to say, in fact I am 100% certain!

The answer to your question is YES!

However, you need to structure it properly and to do that you should obtain professionally qualified and insured advice. That will cost you £200 per property.

Please see >>> http://buytoletconveyancing.co.uk/declaration-of-trust/
.

Stuart

14:27 PM, 6th April 2016
About 3 years ago

Im confused...

Come April 2021 when mortgage interest relief is abolished my wife who is beneficial owner (99%/1% DoT) of 3 of my properties can claim the mortgage costs as an allowable expense on her tax return?

Mark Alexander

14:35 PM, 6th April 2016
About 3 years ago

In 2021 your wife will not be able to offset the mortgage interest aginst rental income as an expense.

HOWEVER, she will be able to claim 20% tax relief.

Therefore, if she's still a 20% tax payer she will be in the same net position as she would have been before clause 24.

On the other hand, a 40% or 45% tax payer will be worse off because they will pay the higher rate of tax on the interest paid (as if it was income) but would only be able to claim back 20% tax relief, therefore leaving them 20% to 255 of the mortgage interest cost out of pocket compared to the position before clause 24.

The extra tax could equate to an infinite tax rate in the event of a rental loss.
.
.

David Atkins

14:39 PM, 6th April 2016
About 3 years ago

Two separate issues Bill:
1) Who is liable to pay tax
2) How much tax is paid.
The declaration of trust (that I have pursued) is so that my spouse can be the tax payer on property held in my name only.

Mark Alexander

14:50 PM, 6th April 2016
About 3 years ago

Reply to the comment left by "David Atkins" at "06/04/2016 - 14:39":

Spot on!

Mortgage lenders based their security on legal ownership bin order that they may repossess in the event of default..

HMRC base tax on beneficial ownership, i.e. who is the legal beneficiary of any rent, profits and capital gains.

The declaration of trust separates legal and beneficial ownership.
.

Stuart

14:53 PM, 6th April 2016
About 3 years ago

Reply to the comment left by "Mark Alexander" at "06/04/2016 - 14:35":

Thanks for clarifying Mark.

A fountain of knowledge!

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