Rental Income – Sole Owner’s main residence?

by Readers Question

10:17 AM, 20th January 2020
About 4 weeks ago

Rental Income – Sole Owner’s main residence?

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Rental Income – Sole Owner’s main residence?

Hi, I have read several threads on property 118 forum and found very helpful and informative. I have bought a flat in 2017 in my sole name for our main residence. I lived there for one year with my wife and two daughters.

Due to my job change, I have moved out from this property in 2018 and let it out immediately after that. I am receiving the rental income in my wife’s bank account. I am in full-time employment and a higher rate taxpayer @ 40%. My wife doesn’t have any income as she is not working. I have £270,000 mortgage outstanding and still, I have residential mortgage on this property.

1) Since I have to move out from this property due to job change, is there any way I can claim the rent expenses that I am paying on my residence now. My argument to claim rental expenses is, Had I not been moved out due to job change, I wouldn’t incur the rent expenses for my new residence, and I wouldn’t earn the rental income on the property that I own. Hence, I believe that there is a direct connection between the rental income I am getting and rental I am paying for my new residence and should be allowed as an expense.

2) If the answer of above is no, can I say that all the rental income belongs to my wife as she is receiving it in her bank account? I read some threads on this forum and found deed of trust is the way to make wife beneficial owner and this deed of trust is not required to submit with HMRC. In this case, I am not sure how HMRC would come to know that the wife is the beneficial owner? Or there is no need to tell HMRC and I can simply file my wife’s self-assessment return showing 100% rental income in her name.

3) If I make wife as 100% beneficial owner, then I think I don’t need to file my own self-assessment return. I can just file wife’s self-assessment return.

4) I have found some contradictory information about Stamp duty liability if I make my wife beneficial owner using deed of trust. I have spoken to a local solicitor and she said that there is no stamp duty liability even if I make wife 100% beneficial owner of property and rental income but in this forum, it’s clearly mentioned that if mortgage is outstanding then stamp duty would be payable.

Would really appreciate your valuable advice.
Many Thanks
Vishal

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Comments

Neil Patterson

10:25 AM, 20th January 2020
About 4 weeks ago

Dear Vishal,

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

Unfortunately Section 24 mortgage interest relief restrictions are not a debatable or of-settable point you can argue with HMRC.

Also you say it is still a residential mortgage so can I assume you have told the lender and got consent to let?

You can use a Declaration of Trust to move the beneficial ownership, but yes if there is a mortgage depending on the figures Stamp duty could be triggered. Please see >> https://www.property118.com/new-sdlt-rules-can-help-smaller-landlords/

Michael Barnes

12:37 PM, 20th January 2020
About 4 weeks ago

1. No. It is the facts, not the reasons, that are important.

2. I believe there are ways to achieve this; take professional advice. It also depends on the ownership of the property and the named landlord.

3. Any changes you make will not be retrospective. You should be filing tax return up to the point where everything is transferred to your wife.

4. It probably depends on who's name(s) the mortgage is in. Again, take professional advice.

Vishal Gupta

21:23 PM, 20th January 2020
About 4 weeks ago

Reply to the comment left by Neil Patterson at 20/01/2020 - 10:25
Thanks Neil Patterson and Michael Barnes for your responses. If I understood this process correctly, neither I need to submit the deed of trust to HMRC nor I need to inform HMRC by any other way that I have made my wife 100% beneficial owner. Is my understanding correct?

Does the "deed of trust" need to be written by a solicitor? The reason I am asking this question, I have called http://www.deedoftrust.co.uk and their senior legal drafter confirmed that there is no SDLT payable in my case as my wife is not paying any consideration and her name would not be on the mortgage as well. I will remain the sole owner in land registry and on the mortgage. The amount of outstanding mortgage is £270,000.

Lastly, do I also need to submit my self-assessment even if I make wife 100% beneficial owner? I have employment income, but the tax is deducted by my company at source and don't have any other income, so I think in this case I don’t need to submit my self-assessment to HMRC.

Many Thanks
Vishal


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