9:09 AM, 21st June 2019, About 2 years ago 9
I own the house I currently live in as a sole owner. I am a higher rate tax payer, while my wife currently has nil income. We are looking to move to a another property and rent the one we are in right now on a AST. I’d like to split the rental income in a tax efficient manner (100% wife, 0% me, if possible). Value of the property is £500k, with an o/s £400k mortgage (75% LTV).
I believe I have 3 options:
Option 1: Sign a Declaration of trust with wife to split the beneficial interest 100%, 0%. Legal title is unchanged so I don’t need to inform mortgage company or change land registry. Form 17 doesn’t need to be filled as property is not under joint ownership.
This sounds straightforward, perhaps too much to create a doubt in my mind. Seems like no-one needs to know? We only declare this to HMRC in our respective self assessments when declaring property income.
Are there any CGT or SDLT liability associated with this?
Option 2: Form a partnership, register the with HMRC and obtain a UTR , allocate 100% of partnership profits to wife on the basis that she runs the business entirely.
No CGT, SDLT issues to consider.
Form 17 doesn’t need to be filled in Option 1 and Option 2 as the property is still in sole ownership.
Option 3: Transfer 10% equity to wife (i.e £40,000 mortgage liability) to avoid any SDLT. (Is this an annual benefit? So I can increase this is in Year 2?) . Then form a partnership as per Option 2. Over and above Option 2 this would allow us to use individual CGT exemptions at the point of sale.
No CGT, SDLT liability still
I suppose in this option I need to inform mortgage company so best done at the point of remortgaging. Also I have to get the deeds updated through a solicitor. Form 17 needs to be filled if we split the income individually? And not, if we operate under a partnership?
Is my understanding of the options correct? Would all the above achieve my primary objective of transferring rental income to my wife?
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There will never be an optimal ‘one-size-fits-all’ business structure for tax purposes. The presentation below provides a useful overview of some of the options you might like to discuss with us.
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