Tax Optimisation on Let to Buy Property preferably in sole name?

by Readers Question

3 months ago

Tax Optimisation on Let to Buy Property preferably in sole name?

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Tax Optimisation on Let to Buy Property preferably in sole name?

I have a question regarding the best way to go about optimising tax payments as necessary on a new buy to let.

I am in the process of changing a residential property into a buy to let

At the moment the property is in my name. The mortgage is also in my name and I am in the process of finalising the application for a buy-to-let mortgage which will also be in my name.

I earn approximately £35,000 per year, my wife who doesn’t work will be named as a joint landlord with myself, once the property is let.

My hope is that I can claim the income from the rent as solely her income as the rental income is £700 per calendar month

This would therefore show it as under the tax threshold for her meaning no tax is required to be paid

I guess my real question is are there any legal requirements for the property to also be in joint name’s or her sole name and/or does her name need to be on the mortgage?

As it would be preferable to arrange this prior to letting the property

Any help, advice or guidance you can offer would be much appreciated to a beginner property investing couple.

Thanks

Bashir

Comments

Neil Patterson

3 months ago

Hi Bashir,

You can change the beneficial ownership without the property being in joint names but the maximum split is 99% 1%.

Please see our Tax Planning page >> https://www.property118.com/tax/

If you are married, the first level of tax planning to consider is a restructure of your income to optimise all available basic rate tax allowances with your spouse (currently £45,000 each) and then to purchase any further properties in a company. The tax changes to mortgage interest relief will only affect you if your total taxable income (including mortgage interest) exceeds £45,000 a year. The Chancellor of the Exchequer confirmed in the 2017 Spring Budget Statement that this figure will increase to £50,000 by the year 2020. Restructuring income between spouses is achieved by changing the percentage of beneficial ownership of your rental properties. It only costs £250 + VAT for each property to achieve this and does not necessitate refinancing.

Mark Alexander

3 months ago

I agree with Neil but please note that Stamp Duty may be payable.

See https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property and in particular Example Two which I have transcribed below.

Example 2 - you pay SDLT even though no money changes hands

The owner of a property valued at £500,000 with an outstanding mortgage of £400,000 transfers half the property to their partner when they marry. Their partner takes on 50% of the mortgage (£200,000).

HMRC charge SDLT on the amount paid for a property or the amount of ‘consideration’ given.

By taking liability for the mortgage, the owner’s partner has given ‘consideration’ of £200,000 for their share of the property which is £1,500 SDLT (0% of £125,000 + 2% of £75,000).

They must pay SDLT on that amount and tell HMRC about the transfer by filling in an SDLT return.

The equity isn’t included in the calculation as you only pay SDLT on the consideration given.

If the transfer is a gift

If the transfer is a gift and there’s no consideration, SDLT doesn’t normally apply.

Graham Bowcock

3 months ago

Dear Bashir

If you are the sole owner of the property then your wife is not the landlord at all, unless you go down the route of changing beneficial ownership as described by others above. You cannot just do documentation in her name without formalising the ownership first. Besides the tax issues (it's your house, your income), the landlord's name should match the owner's name to ensure that tenancy documentation is enforceable. Unless you wife has an interest in the property, you cannot rely on the documents if you have to go to Court. We actually had a case where a judge through proceedings out for this reason (although between related companies, not husband and wife).

Graham

J C

3 months ago

I have spoken to my solicitor and our declaration of trust is 100% to 0% split, and they do not see a problem with that. There has been a lot of recommendations on 99% to 1%, but where does it states that is the maximum split? I would like someone to come up with a legitimate challenge to what my solicitor has recommended.


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