Sharing rental income with my husband?
The income from our five rental properties currently comes to me, as my husband was a higher rate taxpayer, but I would now like to share the rental income with him. I left work last year and then a month later, my husband was made redundant. He decided not to get another job and to take early retirement. We are going to use the rental income to live on until our pensions kick in, in 5/6 years.
It would therefore seem beneficial for the ownership of the properties to be split 50/50, as we will then pay less tax. The first already has my husband’s name on the mortgage but has a Deed of Trust in place for the two children, which will be removed in a few months’ time, when the mortgage is repaid and their names go on the deeds. We will all own 25%. The second has no mortgage, and was bought in both names, but there is a Declaration of Trust in place stating that I am the beneficial owner. T17s were sent to HMRC for both of these properties. The other three were all bought and mortgaged in my name.
I believe that the Declaration of Trust for the second property can be removed and the income will then be split 50/50 for tax purposes. My accountant has suggested that the best way to transfer the three mortgaged properties to joint names for tax purposes, is via a Declaration of Trust so that we don’t have to add my husband’s name to the deeds. As the properties are mortgaged, I understand that this will incur SDLT.
In a few year’s time, we would like to gift one of the mortgaged properties to each of the two children (which may, or may not be mortgage-free by then).
Is this the best way of sharing the rental income with my husband now, or should we be considering other options, given our long-term goals?
Many thanks
Sally
Comments
Have Your Say
Every day, landlords who want to influence policy and share real-world experience add their voice here. Your perspective helps keep the debate balanced.
Not a member yet? Join In Seconds
Login with
Previous Article
EPCs (bane of my life) and Energy Suppliers (also bane of my life)?Next Article
Cities with the most PRS student lets
Member Since January 2011 - Comments: 12212 - Articles: 1408
9:21 AM, 7th July 2022, About 4 years ago
Hi Sally
The use of Declarations of Trust is certainty one of your options but could still result in Stamp Duty falling due if the percentage of the beneficial interest shared (pro-rata to the mortgages on those properties) is > £125,000. It’s not a simple calculation and you should seek insured professional advice.
Also, the use of Declarations of Trust is ridged when compared with a Partnership. There are also a variety of types of Partnership you should consider.
As this is so important for you to get right, I strongly recommend a Property118 Tax Consultation which is priced at £400 but comes with a guarantee of total satisfaction of a full refund.
Member Since December 2019 - Comments: 241
9:31 AM, 7th July 2022, About 4 years ago
The form 17 that have to served the HMRC required a copy of the declaration of trust and for spouses I thought the share of income had to match the share of property owned
Member Since January 2011 - Comments: 12212 - Articles: 1408
10:31 AM, 7th July 2022, About 4 years ago
Reply to the comment left by Chris Bradley at 07/07/2022 – 09:31
It does, that’s the point of a Declaration of Trust, ie it describes the ownership of beneficial interest in percentage terms to which taxation applies. Form 17 alone will not suffice and is only applicable to Jointly Owned Property.
Member Since December 2019 - Comments: 241
11:27 AM, 7th July 2022, About 4 years ago
Reply to the comment left by Mark Alexander – Founder of Property118 at 07/07/2022 – 10:31
My question was, does the ownership share of the asset must match the ownership share of the income.
So if someone owned an asset 25:75 they couldn’t split the income 60:40 as it didn’t match the ownership share.
Member Since March 2022 - Comments: 365
12:00 PM, 7th July 2022, About 4 years ago
The HMRC don’t worry about property ownership as far as rental income goes they just want the tax. I retired while my wife was still working and she was a higher rate taxpayer and I wasn’t, so for tax purposes I took on the rental income. Now we are both retired we now split the rental income 50:50 on our tax forms.
If you don’t get regular tax forms you can download one (don’t forget to down load the property income page) and send it in any time. Once you do this the HMRC knowing you get property income will be sure to send you tax returns in future.
Member Since January 2011 - Comments: 12212 - Articles: 1408
12:02 PM, 7th July 2022, About 4 years ago
Reply to the comment left by Chris Bradley at 07/07/2022 – 11:27
The beneficial ownership share must match the income share YES. However, this needn’t be the case for Partnerships.
Member Since January 2011 - Comments: 12212 - Articles: 1408
12:05 PM, 7th July 2022, About 4 years ago
Reply to the comment left by northern landlord at 07/07/2022 – 12:00
Your statement isn’t correct. Just because HMRC have not challenged you is very different to the fact that they can go back and make you pay tax in accordance with beneficial ownership.
Member Since July 2014 - Comments: 11
1:07 PM, 7th July 2022, About 4 years ago
Reply to the comment left by Mark Alexander – Founder of Property118 at 07/07/2022 – 09:21
Thanks Mark, We have thought about using an LLP after reading much of your advice and watching your videos and doing further research. However I’m not sure that it’s for us, as I now feel that I ultimately want to leave the PRS (due to the constant government interference and changes in legislation I now find it too stressful) and am not sure that my children would want to take it on. When I said I wanted to gift them a property each, it was to live in as their home/ sell & use the cash elsewhere.
Member Since July 2014 - Comments: 11
1:12 PM, 7th July 2022, About 4 years ago
Reply to the comment left by Chris Bradley at 07/07/2022 – 09:31
The T17 did reflect the beneficial ownership on the Declaration of Trust.
Member Since January 2011 - Comments: 12212 - Articles: 1408
1:53 PM, 7th July 2022, About 4 years ago
Reply to the comment left by Sally at 07/07/2022 – 13:07
I understand.