Help with passing property rental to my wife for tax purposes

by Readers Question

9:39 AM, 6th January 2017
About 2 years ago

Help with passing property rental to my wife for tax purposes

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Help with passing property rental to my wife for tax purposes

I own two flats for which up until now I have been receiving the income and declaring it under self assessment. I now have some extra earnings which take me into 40% tax. transferring

I want to pass the property income solely into my wife’s name for tax purposes as she only pays 20%. I have been advised to send HMRC a Form 17 to show that she now gets 100% of the income.

The bit I need help with is this – we jointly own the two flats and it says that I need to produce evidence by way of a declaration of deed. Does this mean that I’m transferring the title deed to my wife solely?

How much does this cost and does it have to be done by a Solicitor? Or am I only transferring the tax requirement to her fully which is what I want?

A final point is that we deliberately bought the two flats jointly so that when we come to sell either we can use both of out CGT allowances. If I sign over the tax liability to my wife am I also then losing out on the joint CGT? Hoping someone can help!?

Terry



Comments

Joe Edward

10:12 AM, 6th January 2017
About 2 years ago

Hi Terry -

No - you are not transferring legal title to the property. All you are doing is splitting the beneficial interest to the rental income. This can be achieved by a short form declaration of trust pursuant to which you and your wife agree to split your interest to the rental income (e.g. 99.9% to her 0.01% to you). Legally speaking, it is a very simple document and any high street solicitor should be able to do this for around £200 plus VAT (I expect you can find this even cheaper if you are so inclined to shop around). It does not need to be registered at Land Registry. You (together with your wife) will remain the legal owner of the property and your interest in the capital will be unaffected (unless you decide otherwise). One point you may wish to consider is to include a clause in the declaration of trust enabling any party to revoke the arrangement without cause upon say 2 months notice after which time interest in the rents would revert to 50/50 split. This is to mitigate any possible issues on the unlikely event of a divorce etc.

One final point - assuming you are currently holding the properties as joint tenants this act will sever the joint tenancy and, you will, going forward be deemed to hold the properties with your wife as tenants in common. The key difference is that there is no right of survivorship (i.e. when you or your wife dies your/her interest in the property will not automatically vest in the surviving partner but will be dealt with in accordance with the terms of any existing will). For completeness, you may wish to consider having wills produced which guarantee that upon death the interest in the properties will vest in the surviving partner.

Joe

Mark Alexander

11:14 AM, 6th January 2017
About 2 years ago

Hi Terry

As property is already owned jointly you will need to file form 17 within two months of transferring beneficial ownership to your wife.

A Declaration of Trust transfers the beneficial interest, which is what is taxed by HMRC. The legal title, and hence mortgage arrangements remain unchanged. There is no CGT payable on transfers between spouses.

When you come to sell the property you can reverse the process, i.e. assign 50% of the beneficial interest back to you and file Form 17 again with HMRC to enable both of you to utilise your annual CGT exemption allowances.

The cost is £250 + VAT (total £300) per property - see >>> https://www.property118.com/need-become-rental-partnership/93073/
.

Steve Lindsey

13:08 PM, 7th January 2017
About 2 years ago

Hi Terry,

I have read somewhere recently, may even have been HMRC website, the split 90/10 or whatever, should reflect reality of resources contributed, not just a whim of ours to decide how much Tax we want to pay.

Not sure how this would be enforced in reality and we have precedent of Tax Planning v Tax Avoidance on our side, but maybe worth looking into in your decision making

We have used solicitor for declaration of trust initially, and then used this as template to change split back again. HMRC Form 17 is very simple to complete.

Good luck
Steve

Simon Lever

1:24 AM, 8th January 2017
About 2 years ago

Property income by default for husband and wife is taxed 50:50 no matter what the underlying ownership is.

It is possible to change this by using form 17 so that the income is tax based on the underlying ownership of the property.

These are the only 2 options for a jointly owned property unless you set up a proeprty partnership with both H & W beign partners. If it is a partnership then you can vary the profit share. However there will need ot be a separte busines set up with a partnership tax return and everything that goes with that.

If you transfer beneifcial ownership from one parnter to another unless, as Mark says, the beneficial ownership is transferred back again the capital gain will be split on the same basis as this is the underlying ownership.

Please take profesional advice on this from your accountant.

Brian Hughes

13:41 PM, 10th January 2017
About 2 years ago

My understanding is that:
If OP has been joint owner of the properties with his wife, in the absence of form 17 the income should have been declared 50/50 and tax paid accordingly.
If a form 17 is now presented to HMRC is it likely that they will look back over previous years and take action for not declaring 50/50?
I have a similar situation in reverse whereby I am sole registered/legal owner of the property for 45 yrs. but have been sharing income 50/50 with my wife (in ignorance of the law) and not realising the problem. I would suggest that the property should originally have been purchased in joint names as it was purchased with joint funds and all income and expenses since have been from/to joint funds.
I would assume and hope that we would be declared joint beneficial owners in this case.
At this point in time I am looking to transfer 50% ownership to my wife for IHT and/or Capital Gains tax reasons but am concerned about waking up HMRC and facing consequences.
Any advice on this situation would be very much appreciated.

Mark Alexander

13:53 PM, 10th January 2017
About 2 years ago

Reply to the comment left by "Brian Hughes" at "10/01/2017 - 13:41":

Why not simply correct your paperwork by putting a Declaration of Trust into place from the date you first entered into the arrangement?

There is no requirement to complete and file Form 17 if the legal title of the property is in the name of aq sole owner.

See our LEGAL tab.
.

Paul Harsley

21:22 PM, 20th November 2018
About 3 weeks ago

Reply to the comment left by Mark Alexander at 10/01/2017 - 13:53
Mark,

Are you saying that if a property held in the sole name of one partner a deed of trust can be used to issue beneficial ownership and therefore taxation of income without changing the legal title?

I have two properties that are in my sole name, another in joint names and one in my wifes name. I am now a 40% tax payer and my wife is 0%. As we have been operating from a joint bank account for all of these properties for 5 years now and have always worked together to manage them it would be great if this is the case however I am not sure this is legally possible?

Mark Alexander

21:36 PM, 20th November 2018
About 3 weeks ago

Reply to the comment left by Paul Harsley at 20/11/2018 - 21:22
Yes that is exactly what I am saying, but please take advice because there can be SDlT complications even between spouses.

Paul Harsley

21:55 PM, 20th November 2018
About 3 weeks ago

Thanks Mark. This seems to be an area that many accountants disagree on. I will take legal advice as I'm not sure how HMRC would react to a sudden large drop on my rental income on my SA's. If there is an unequal split would a form 17 be required?

Mark Alexander

8:10 AM, 21st November 2018
About 3 weeks ago

Reply to the comment left by Paul Harsley at 20/11/2018 - 21:55
I suggest you speak with Mark Smith at Cotswold Barristers http://www.cotswoldbarristers.co.uk/~Mark-Smith

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