Putting a property in my husbands name for tax relief?

by Readers Question

4 years ago

Putting a property in my husbands name for tax relief?

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Putting a property in my husbands name for tax relief?

Hi all

Your help would be greatly appreciated. Putting a property in my husbands name for tax relief

I am currently an owner occupier and own one property only which I have owned for almost 3 years. I bought the property when I was single and I have since become married. I still own the property in my own name. My spouse and I put a deposit down on a second home which is not due to be complete until 2016. In the mean time, we want to rent our place out quickly to start saving some cash. I am a 40% tax payer yet by husband is a 20% tax payer. Am I able to gift the property to my husband (via a solicitor) and have the rent coming into his account ensuring that we only need to pay 20% tax rather than 40%?

If this possible, is there any effect on capital gains tax at all?

My mortgage deal is up in March so this would end and then we would do the transfer. Additionally, do you know if banks openly accept first time landlords with new properties in their name? I read that some can be funny for first time landlords if you have not had possession of the property for 6 months?

I would love your advice

Thanks

Mrs A-S



Comments

Mark Alexander

4 years ago

Good news! 😀

Not only can this be done, there are many ways to do it.

There is no CGT payable between spouses.

Possibly the best way to deal with this would be to create a declaration of trust whereby your husband is gifted 99% of the equity. You would still own the property according to HM Land Registry but the declaration of trust will be acceptable evidence to HMRC that the rental income belongs to your husband. This route would also mean that you don't need to refinance unless it is beneficial to do so.

Please note that if you took the existing mortgage of a homeowner basis then you will need to apply to your mortgage lender for "consent to let" if you decide to stick with that mortgage.

In terms of remortgaging, you shouldn't have a problem if you work with a good broker. I suggest this chap >>> http://www.property118.com/member/?id=3042

Property118 also has a Joint Venture with a solicitors firm who will be able to advise and sort out the necessary paperwork with regards to the most effective tax structure. Also, as this is what they do day in / day out so you will not be charged for hours of reseach. Please see >>> http://buytoletconveyancing.co.uk/

Hope that helps, please let me know what you decide to do and how you get on :_
.

Mark Alexander

4 years ago

This discussion continued offline via email. I have been given permission to publish it here .....

Dear Mark

Firstly, sincere thanks for responding to my post so promptly on your website with such good detail and recommendations about who to use for transferring my property into my spouses name, a great service I must say and clearly you have a vast amount of knowledge. I will indeed contact the people you recommended and mention that you recommended me. I will do this this afternoon.

This is the very first time we have done a buy - to - let and I was wondering if you could briefly scan down the email and see if you think it all makes sense or add any comments. Your help will be greatly appreciated, being first timers we don't want to end up in a situation where it is too much stress or not beneficial.

As mentioned I bought the flat in March 2012. My husband moved in September 2013. I love your idea of gifting my husband 99% of the property as I am guessing that this means when we come to sell it, we will still have 3 years of living in the property, meaning we will have a 30k (is it 10k a year?) exemption from CGT? For more information of this subject please see >>> http://www.property118.com/capital-gains-tax-relief-on-a-property-you-have-lived-in/ Also if I gift 99% of the mortgage to him, does this mean that the new mortgage should be in my name, his name or both our names? There is legal title (where ownership is registered with HM Land Registry) and then there is beneficial interest (this is what a declaration of trust refers to – i.e. you hold 99% of the equity in trust for your husband) and this is not recorded at HM Land Registry. It is the latter I am suggesting to you. If the legal title is unaffected then YOUR WIFE may continue to own the property AND the mortgage and you do not need to feature on either to benefit from the tax planning opportunity.

We bought the flat for 200k. It was one of the last that was left and I believe I got a good deal on it. The estate agent who rented out our flat for us told us he thought our flat was worth around 250k due to the building going up in value so much recently and being in Manchester city centre. He did say however that the bank would probably value it at around 225 - 230k. We are therefore going to put 225/230 as the market value when we apply for the mortgage. Currently we have 157.5k equity in the property. We would like to take some money out and remortgage at 75% making our owing 168.75k/172.5k. We will be transferring to an interest only buy to let mortgage with a new provider as our existing provider (Nationwide) do not offer interest only. Are we able to go through the process of taking this extra money out? We will be using it to finance a new personal house in 2016 which we have put a minimal deposit down on and don't need to put the rest down until September. Mark Edwards will be able to advise you on this.

We have been looking at 75% due to the much better interest rates than 80% ltv. We could ideally do with having 80% but know that this also limits the number of providers and good rates, would you suggest going for 75%ltv rather than 80% if we can manage on 75% (which we can, but 80% would just make it a little easier)? Mark Edwards will be able to advise you on this.

We put the flat up for rent at 1250 per month and we didn't expect to get it! Given it is our first time we decided to rent through an agent. He lives in our building and knows the building and the flat well. We were offered 1300 for the flat in the end with some of the existing furniture which we decided to take. Negotiations are still going ahead though so it could be between 1300 - 1200 for a 12 month contract. If we got the 1300 then our take home after agency fees (including VAT charges) would be 1177 per month. Our monthly costs will be roughly 534 pounds for a 5 yr mortgage, 191 pounds service charge, 16 pounds ground rent for the month, meaning we would have 741 in total, this minus the 1177 leaves over 431 pounds per month - first of all, does this sound like a good figure against the rent? I am unable to comment. Please see our Property Research Tool to locate comparable information – see >>> http://www.property118.com/property-reseach-tool/ Secondly, when doing a tax return, is this how you report your taxable income (including any other costs for the year that are able to be written off) and then we pay tax on the  profit? Ie - we made 431 pounds, minus 130 for wear and tear allowance, minus an additional 100 (apportioned per month against a bigger one of figure) pounds per month for other costs, meaning our taxable income is 431 - 130 - 100 = 201 pounds to pay tax against? I recommend you to engage an accountant – see >>> http://www.property118.com/member/?id=452  I also recommend you to read this article >>> http://www.property118.com/landlords-tax-returns-10-common-mistakes/61630/

Given that you suggested gifting my husband 99%, do we need to then pay 20% tax on 99% of the profit and 40% tax on 1% on the profit? Correct, but please see above. Just so I know for when completing. Also speaking of tax return, I believe the tax year must be reported between April 5th - April 4th. Our first tenants move in on March 1st or a week before, would you suggest that we still need to do a tax return even though it is only 1 month? YES One other question on tax returns, can we include VAT as a cost or can it only be the cost itself? YES you may Eg our agency fees are 8% a month plus vat, so can we put 8% on our tax efficient costs or can it be 8% plus 20% VAT?

Please speak to your agent about purchasing Rent Guarantee Insurance. Also, check that your agent is providing all of the following and that there are no penalties for moving on if you decide he’s no good – see >>> http://www.property118.com/property-management-checklist/67891/

A quick note on mortgage terms. We have heard a lot of speculation about mortgages rising imminently and considerably over the next 5 years, and so we thought that it would be better to secure a 5 year deal for security purposes. It will cost us roughly an additional 150 pounds per month to strike a 5 year deal VS a 3 year deal. How would you approach this situation at this time where a rise may (or may not) be imminent and radical? Mark Edwards will be able to advise you on this.

As we are about to incur some costs for arranging tenants, we have been reading about tax free costs to apply. We know that rental fees and rental finders fees are allowed and we will ensure that we put these on our tax returns. We also know that some solicitors fees are allowed (need to brush up on this), brokers fees are allowed and mortgage arrangement fees are allowed. My question here, is if we have a 2000 pound mortgage arrangement fee, which is for a 5 year mortgage, and we decided to pay this rather than just add it to the mortgage payments, is this tax saving applicable only for the year which it is was incurred in, or can it be spread across the 5 years? As I am sure you know arrangement fees can be huge on BTL property and I wanted to ensure we did this the best way as adding it to the mortgage only costs an additional 5 - 10 pounds a  month on the mortgage, but obviously on interest only it pushes up the total mortgage amount and may not necessarily get paid back anytime soon. Given that we are close to April we were going to have our new mortgage kick in from after April 5th to carry the broker fees into the new year, as our agency fees will be 240 so this plus wear and tear and other fees could take up most of 2014/2015 allowance. Please see my comments above regarding utilisation of a specialist accountant

A note on furniture - we have left the flat fully furnished, with good new(isn) furniture and we don't expect to have to replace it anytime in the next few years. We know that we can have a 10% per year wear and tear tax saving allowance without actually having to repair anything or pay anything and this is 10 percent of the rental value (1300?) - is this correct? If in 5 years we know a couple of big items need replacing, are we able to swap this from wear and tear to actual costs to replace, and as long as it is like for like is there any max threshold on what we can claim for this currently? Please see my comments above regarding utilisation of a specialist accountant

One last question is if we need to have work done prior to the new tenants moving in (getting aerials in the bedrooms, putting new window restrictors on, changing a toilet seat etc) are we able to put these costs into our tax return as tax savings as well? Or do they need to be done after the tenant has moved in? or can we get a receipt further into the year? Please see my comments above regarding utilisation of a specialist accountant

I think this is everything we had, if we have missed anything or got anything wrong then please do let us know, we would massively appreciate your expert advice, and completely appreciate your time in helping us.

Is there anywhere that I can review your site/give feedback/promote it as you have been such a great help to me?

YES there is. Clearly you are looking beyond just one property. Are you aware of the Consultancy service I provide? As a gesture of goodwill I have not charged you for my time in this instance, despite working on a Sunday. However, this obviously can’t go on if you are seeking ongoing mentorship. Please see >>> http://www.property118.com/consultancy-mark-alexander/61522/

Further email ....

Hi Mark

Thank you so much for all of the information, hugely appreciated. I will certainly get in touch with the two people you suggest today. I will also look at a specialist accountant.

Please do post the conversation, I am more than happy for that.

When we get our second property (2016) I will have a clear understanding of whether we can continue to build or whether we stick with the two, but if we do continue to build you can be assured I will get in touch for a consultancy service.

I will also recommend your services to everyone I speak to.

Regards

Ian Holmes

4 years ago

My wife and I had similar problem of title being in wrong name.

Got around this by the non property owner providing a management service to their spouse for an amount that so happened to equal the rental profit after all allowable charges. Thus reducing the profit liable to income tax to zero for the high rate tax payer.

This will also avoid the risk of subsequent divorce and no solicitor fees now.

However, both will have to complete tax assessment forms.

Mike W

4 years ago

Mark,
A question on the detail above in respect of: QUOTE Possibly the best way to deal with this would be to create a declaration of trust whereby your husband is gifted 99% of the equity. You would still own the property according to HM Land Registry but the declaration of trust will be acceptable evidence to HMRC that the rental income belongs to your husband. This route would also mean that you don’t need to refinance unless it is beneficial to do so. UNQUOTE
So the declaration of trust does not require any changes to land registry or mortgage interests? And basically means after calculating the 100% rental profit 99% goes to one spouse and 1% to the other? Can the percentage be altered year by year - retrospectively? or does the % & deed need to be registered somewhere and therefore is date stamped?

Mark Alexander

4 years ago

Reply to the comment left by "Mike W" at "09/02/2015 - 15:29":

"And basically means after calculating the 100% rental profit 99% goes to one spouse and 1% to the other?" CORRECT

"Can the percentage be altered year by year – retrospectively?" YES

"or does the % & deed need to be registered somewhere and therefore is date stamped?" It is date stamped by the solicitor and does not need to be registered anywhere.

The key issue here is that CGT isn't payable on transfers between spouses. This would not work between other relatives, friends etc. ONLY between spouses.
.

Puzzler

4 years ago

Reply to the comment left by "Ian Holmes" at "09/02/2015 - 12:29":

You say you "got round" this by paying the non-property owner for services. By "got round" did you assume you could do this or get advice? HMRC will be unlikely to allow that unless you can justify the payments are for genuine work and usually it will be disallowed to you or your spouse as a landlord is essentially self-employed. For it to be worthwhile you would have to be claiming more hours than your spouse could possibly be spending "managing" your property(ies).

Itchy Scratchy

3 years ago

How much would you suggest that a solicitor should be charging for a Declaration of beneficial ownership to be filled in and filed and form 17 to be correctly completed?
Thanks

Itchy Scratchy

3 years ago

Sorry one more q - If the OP put 99% beneficial interest in property in husbands name but was still 100% owner as far as legal title what would happen in the event of a divorce. Would husband now be eligible for 99% !
Thanks

Mark Alexander

3 years ago

Reply to the comment left by "Itchy Scratchy" at "08/07/2015 - 11:36":

It would make no difference to a Court settlement in a divorce scenario.

Same as if all assets were in one persons name, the divorce Court could still order a division assets in whatever proportion it deemed to be fair.
.

Mark Alexander

3 years ago

Reply to the comment left by "Itchy Scratchy" at "08/07/2015 - 11:33":

If they do a full job in terms of providing written advice, preparation of documents etc. then around £200 plus VAT per property as they will be putting their PI insurance on the line.

You may get a slight discount for multiple transaction if you negotiate hard.

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

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