Buy to let ownership with wife and next purchase

by Readers Question

14:01 PM, 9th November 2016
About 2 years ago

Buy to let ownership with wife and next purchase

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Buy to let ownership with wife and next purchase

I currently own 1 property in my name (that I purchased before I got married) which we now let and we are buying a second property as a buy-to-let. I’m a higher earner than my wife.joint property

Should I get a deed of trust drawn up on the first property so that we can declare rental income 50:50 and should I put the second property solely in my wife’s name (rather than joint ownership) to benefit from her lower tax rate?

If so, what are the implications of doing this – if we sell do we loose out on my CGT at a later date?

Thanks

Richard



Comments

Neil Patterson

14:06 PM, 9th November 2016
About 2 years ago

Hi Richard,

It is not possible to give specific advice without all the facts and figures along with future plans.

However, If the first property is in your sole name a declaration of trust would seem to make sense. Please see >> https://www.property118.com/ownership-restructuring-for-tax-purposes/

Also as well as in your wife's name have you also considered your next purchase in the name of a SPV Limited Company?

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

BTL Curious

15:02 PM, 10th November 2016
About 2 years ago

hi Neil I had a similar question [own a property in sole name but want the income taxed on the mrs as she is a basic rate tax person] hence why I came to this page, and thanks for the useful answer I had a question on how the declaration of trust and tax works if there is mortgage and therefore interest on it. Looking at the link it is clear there is no need to register DOT at land registry as no legal ownership is changing, only the beneficial interest is moving from the legal owner.
Doesn't the mortgage company need to know? Would I need to check the terms and conditions? Do you know if a standard T&C of BTL mortgage would include such provision that requires notification to lender?
Lastly, as i retain legal ownership and therefore continue to be named as borrower on the BTL mortgage, this in itself does not prevent my mrs to claim mortgage interest against the rental income even though she is not legal owner or named on the BTL mortgage?
I would really appreciate comments from you or anyone who has already come across this question before?

Neil Patterson

15:10 PM, 10th November 2016
About 2 years ago

I hope this answers from >> https://www.property118.com/ownership-restructuring-for-tax-purposes/

HMRC’s default position for taxation of rental income from jointly owned properties is that rental profit is split 50/50. This can be amended to any share (e.g. 99%/1%) subject to a declaration of trust and filing a Form 17 with HMRC.

Where property is owned by one person a declaration of trust can also be used to split the beneficial ownership between spouses. In that case Form 17 would not be applicable but HMRC would need to be informed of the arrangement and you would each need to complete tax returns for your share of rental profits in future years.

There is no Capital Gains Tax payable on transfers between spouses and no Stamp Duty Land Tax is payable. This is because legal title remains unchanged at HM Land Registry. Please note this only applies to transfers between married couples and civil partnerships. Transfers to children, siblings, parents, friends or a Limited Company are all taxable.

As the legal title of HM Land Registry does not need to be changed there is no requirement to advise or seek consent from mortgage providers. This is because their security remains unchanged.

BTL Curious

15:43 PM, 10th November 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "10/11/2016 - 15:10":

thanks!

Rich Mockett

6:15 AM, 11th November 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "10/11/2016 - 15:10":

Neil,

Thanks for the comments above, really helpful.

Can you advise if you do a deed of trust to split ownership (as tenants in common) then you would both benefit from you Capital Gains Allowance upon selling? Furthermore, can the split be changed more than once so, for instance, you have 99%/1% while renting it out and then change to 50%/50% when you come to sell? Many thanks

Simon Lever

11:51 AM, 14th November 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "10/11/2016 - 15:10":

Hi Neil

You are not entirely clear with regard to the split of income between husband and wife.

No matter what the underlying ownership of the property is the default position for tax purposes is that the income is assessed on husband and wife 50:50. Even if the underlying ownership is 99:1 the rent is assessed equally. This gives tax planning opportunities where the sole owner of a property is a higher rate taxpayer and their spouse is not. A transfer of 1% ownership of the property can transfer 50% of the income to the lower taxed spouse.

If the husband and wife do not wish to be taxed equally on the income then they can elect via form 17 to have the income assessed on them in proportion to the actual underlying ownership of the property. If the ownership is 99:1 then that is the only other ratio that can be elected for.

It is not possible to say that although the ownership is 99:1 the income is to be assessed at a ratio of 75:25 or any other split.


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