Declaration of Trust twice?

by Readers Question

9:23 AM, 9th August 2016
About 2 years ago

Declaration of Trust twice?

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Declaration of Trust twice?

I purchased a property in 2007 with my Mother. My Mum’s name purely went on the mortgage for loan purposes (as her salary allowed me to get a larger sum). I have always paid all expenses and lived at the property. This month we completed a Declaration of Trust to state that I own 100% of the property.burger

I have recently rented the property and am nervous about the new tax laws coming into place in 2017 which will mean the Interest Only portion (a considerable amount) is not deductible (which in-turn means a considerable tax bill). My husband who works for our Church and has a very minimal salary (hence why his name was not on the mortgage initially) still has a tax free portion of income we could use if I were able to complete another ‘Declaration of Trust’ and to gift him 99% ownership.

Is this possible and legal? (Essentially to have completed a Declaration of Trust stating my personal ownership of 100%, despite my Mothers name being on the mortgage with mine. And then now owning 100% to complete a second Declaration of Trust gifting 100% of the property to my husband?).

I look forward to hearing from you.

Thanks so much in advance.

Susie



Comments

Neil Patterson

9:28 AM, 9th August 2016
About 2 years ago

Hi Susie,

Now that is an interesting question, but unfortunately quite a lot beyond my expertise.

If you see our page on "Ownership restructuring for tax purposes" and need professional legal help you can always contact our team at Hawkins Ryan on that page 🙂
please see >> https://www.property118.com/ownership-restructuring-tax-purposes/

Dave Driver

10:33 AM, 9th August 2016
About 2 years ago

Do you understand how Section 24 works?

You have said above that the interest only portion is not deductible, but this is not strictly true.
In your case, it seems that you have a repayment mortgage, and you will probably appreciate that the repayment portion is not deductible in any circumstances. However, for the interest portion you will receive tax relief at the basic rate of tax. Whilst this is a very bad thing for many people, it does not affect everyone. If your income, including total rent received, does not reach the threshold for higher rate tax, then you will not be affected. If it does reach the threshold, you will be worse off, but will still receive some tax relief.

So, before you start to panic, do your sums to find out how it affects you.

Dave Driver

10:37 AM, 9th August 2016
About 2 years ago

Also - whether or not you are affected, have you contributed to the fighting fund? If not, please do.

Sam Addison

10:50 AM, 9th August 2016
About 2 years ago

1. If you are talking about 'clause 24' then, while it starts in 2017, it is being phased in over a few years and effectively will allow interest to be allowed against tax at 20% (at the moment - you can't trust politicians) so if the rent doesn't put you into 40% tax there may not be a problem.
2. I believe you can do something with 'beneficial interest' which can be used to place a proportion of income in your husbands name.
3. I thought I heard a while ago of the ability to transfer unused tax allowance to spouses.

If after 1. you still seem to have a problem then I would suggest you search this site for 'beneficial interest' and read up on it to see if it applies.
For 3. you can talk to HMRC.

Michael Le Souris

14:22 PM, 9th August 2016
About 2 years ago

Yes, it is possible to do a second declaration of trust varying the ownership of the beneficial interest ( a gift, effectively) but you do not say whose name the legal interest is currently registered in - you and your mother jointly? If it is owned jointly with your husband there is a special procedure unless you want to hold the income 50/50 - Google "Form 17" for the HMRC information on this. As Sam and Dave (wasn't that a band?) point out, the denial of loan interest full deductibility only comes in in a tapered way over 4 years and you will still get a basic rate credit. There is an example of how it will work in this article:
http://www.plantagenetpartners.com/income-tax-relief-restrictions-for-residential-landlords/

Sue Richardson

13:37 PM, 10th August 2016
About 2 years ago

Reply to the comment left by "Michael Le Souris" at "09/08/2016 - 14:22":

Thanks so much for your feedback All. So much appreciated.

In answer to the questions raised:

Myself and my mother are listed on the mortgage.
I own 100% of the property via a Tenants in Common agreement.
I would like to gift my husband 100% of the property via a Declaration of Trust (I have previously completed a Declaration of Trust to adjust the portion owned by Myself and my mother since I pay 100% of the mortgage / bills associated)
The mortgage is Interest only and therefore my understanding is that considerably more tax will be owed from April 2017 (although I do understand this will be introduced gradually over a 4-year period)
I will look into form '17', thank you so much for the recommendation. And, I am not yet familiar with the 'Fighting Fund' however will look into this.

Thanks again.

David Mensah

8:51 AM, 13th August 2016
About 2 years ago

I'm sure you can do a second declaration of trust. You are the beneficial owner of course.

What you should watch out for is that there may be SDLT in the gift payable due to the mortgage. Look up "consideration"

David Mensah

8:53 AM, 13th August 2016
About 2 years ago

Also, you should check whether You can deduct mortgage interest under your husbands name if he is not on the mortgage. I thought no.

H B

17:49 PM, 14th August 2016
About 2 years ago

If your mother's name is still on the deeds you do not own 100% of the property, but you might be entitled to 100% of the benefits using the trust arrangement.

I think that the original trust arrangement needs to be revoked and a new one put in is place because a trust benficiary does not have full rights of ownership. You would not necessarily be able to reassign the part of the property that you benefit from to another.

Also as I understand it, your husband would not be able to offset any of the income against the mortgage and you will not be able to use them as a deduction on your own return either, so they would be taxable in full on the income after other deductions. Where this falls into the 20% tax band, the benefits of the trust arrangements will be limited.

David Mensah

7:27 AM, 15th August 2016
About 2 years ago

Hi Susie,

Here is a good article about possible CGT you could pay due to the mortgage (consideration)

http://www.taxcafe.co.uk/resources/stampdutytrap.html

They give an example that may be relevant to you:
Paul owns a property worth £400,000 on which there is a mortgage of £300,000. He transfers a 50% interest to his wife, Caroline, who assumes liability for the mortgage jointly with Paul. Paul does not charge Caroline any additional consideration.

For stamp duty land tax purposes, the chargeable consideration for the transfer of the 50% share is £150,000 being 50% of the debt liability transferred. A land transaction return must be completed on Caroline’s behalf and she must pay stamp duty land tax at 1% - £1,500.

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