Reducing Tax Liability on a Renting Property

by Readers Question

4 years ago

Reducing Tax Liability on a Renting Property

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Reducing Tax Liability on a Renting Property

Reducing Tax Liability on a Renting Property

Currently my wife and I are joint owners of an apartment which our daughter lived in until recently. Now she has moved out we are about to rent it.

I am a 40% Tax payer and my wife is a 20% Tax payer, so we are looking at every avenue to reduce our tax liability.

My question is am I able to remove my name from the Deeds so the apartment is sole owned by my wife and therefore reducing our overall tax liability as she will only have to pay the 20% Tax on any future income?

I have spoken to a number of individuals, however there has been contradictory responses indicating that HMRC might view this as a Tax avoidance measure.

Thanks

Nigel



Comments

Mark Alexander

4 years ago

Hi Nigel

The biggest complication comes if you have a mortgage on the property. If you do there are two options, the first is to remortgage (could be expensive), the second is to switch the basis of ownership from joint tenants to tenants in common (does not require a remortgage).

Transfers between spouses are exempt from CGT so no issues there but there may be stamp duty. Your wife could technically own 99% and you could own the other 1%. You would both remain jointly and severally liable for the mortgage though.

Please don't confuse tax avoidance (which is legal) with tax evasion (which is illegal).

The following is one of my favourite quotes so far as tax case law goes. It is from the case of Inland Revenue Commissioners v The Duke of Westminster (1936 19 TC 490), which held: “Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.”

For more information please see >>> http://www.property118.com/landlord-tax/
.

Dee Mc

4 years ago

I had a similar question but it was regarding property owned by my daughter and myself. Below is an extract of an article on the subject.

JOINTLY OWNED PROPERTY AND TAX
There are two ways for more than one person to own a property – as “joint tenants”, or as “tenants in common”.
Joint tenants
Joint tenants are deemed to own equal shares of the property, so three joint tenants would own a third each – or rather to be precise, would be entitled to a third share of any income or capital gains arising from owning the property. None of the joint tenants can sell their share
without the others, and on their death, their share passes to the other joint tenants in equal shares, and they cannot change this by putting something different in their will.
Married couples and civil partnerships
The rules for rent are different for a married couple. They are deemed to receive the rent in equal shares, whatever the actual ownership of the property.
In the case of a couple who own a property as tenants in common, it is possible for them to elect to be taxed based on their actual ownership. If for example, the split in the tenancy in common is 10% to the husband and 90% to the wife, the couple can complete a “Form 17” and send this to the taxman, electing to be taxed on a 10:90 basis.
The split on a Form 17 must be the same as the actual ownership, and the rent will only be taxed in that way from the date the Form 17 is signed, and then only if the form is sent to HMRC within 60 days of being signed.
This does not apply to capital gains – these are taxed in the same way as for other joint (or tenancy in common) owners, and follow the actual split of ownership.
Changing the split of ownership
In legal terms, it is quite simple for joint owners to convert their ownership into a tenancy in common, and for tenants in common to change the proportions in which they own the
property. A solicitor should advise on exactly how to do this, but there are two points
to watch:
 If there is a mortgage on the property, it will probably be necessary to obtain the
consent of the lender – again, a solicitor can advise on specific cases.
 A change in the split of ownership is a “part disposal” for the purposes of Capital Gains Tax. The owner whose share is reduced will be deemed to have sold that proportion of his interest in the property at market value, and may therefore be liable for tax on the deemed gain. This does not, however, apply to married couples, where changes in
ownership are treated as creating neither a gain nor a loss for CGT.
Tip
Particularly in the case of married couples, it may well make sense to have an uneven split of ownership – for example where one of the couple pays income tax at the higher rate of 40% and the other has no income or only pays tax at 20%. Just bear in mind that should you split up, the split of ownership is likely to determine how much of the property you get in
a divorce!
This article by James Bailey first appeared in Tax Insider magazine (www.taxinsider.co.uk)

IAN GOULDSBROUGH

4 years ago

James Bailey is quoted as follows "A change in the split of ownership is a “part disposal” for the purposes of Capital Gains Tax. The owner whose share is reduced will be deemed to have sold that proportion of his interest in the property at market value, and may therefore be liable for tax on the deemed gain."

My query relates to a reduction in ownership but done for NIL CONSIDERATION. (In this case, not between husband and wife). If I gift
my share for nothing, can the transfer be taxed?

Mark Alexander

4 years ago

Reply to the comment left by "IAN GOULDSBROUGH" at "18/08/2014 - 16:59":

Yes it can, the value of the gift will be assessed by HMRC.
.

DC

4 years ago

Reply to the comment left by "Anonymous " at "17/08/2014 - 11:00":

"Joint tenants are deemed to own equal shares of the property............. and they cannot change this by putting something different in their will."

Not strictly correct because a Declaration of Trust can specifically mention that the net proceeds are to be divided in accordance with that Declaration.

Also, the mortgage company don't require to know what split the share of the property is in so long as all relevant names are on the mortgage and deeds. They will chase any one of those names for full repayment in the event the loan is called in.


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