Tenants in Common, Declaration of Trust and Form 17?

by Readers Question

8:57 AM, 24th April 2017
About 2 years ago

Tenants in Common, Declaration of Trust and Form 17?

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Tenants in Common, Declaration of Trust and Form 17?

Prior to the 2nd April 2017, my brother, his wife, my wife and I owned a rental property as tenants in common in equal shares.

On the 2nd April, a Declaration of Trust was made in which my wife declared that her 25 part equitable interest in the property is held on trust for herself and our two adult children in the proportions 10 + 7.5 + 7.5. The trust was signed by all three and witnessed.

We were under the impression that HMRC should be notified within 60 days via Form 17.

However, having gone online to complete the form, we now realise that it is used only when there is a change in beneficial interest involving married couples or civil partners.

Three simple questions:

1) Is my wife obliged to advise HMRC of the new arrangement?
2) Are our children obliged to advise HMRC of the new arrangement?
3) Is there an alternative to Form 17 that should be used?

We await three simple answers!

Many thanks

Ian



Comments

Mark Alexander

9:34 AM, 24th April 2017
About 2 years ago

Hello Ian

Simple answers:-

1) Yes
2) Yes, your children need to register for self-assessment and declare their 7.5% shares of rental profits, losses and finance costs
3) As above

Now for the complications:-

Having made this transfer your wife is deemed to have crystlallised three fifths of her capital gains at the point of transfer. This must be declared in her SA105 Self-Assessment return.

You haven't provided any figures so I will give you an example.

Let's assume the property was acquired at a cost of £100,000 inclusive of all capitalised fees and stamp duty and there have been no capitalised improvements. Let's further assume that the property has since risen in value and was worth £160,000 at the point of transfer. Your wife owned 25% of that gain, i,e. £15,000. By transferring three fifths of her gain she has crystalised £9,000 of the gain she made. This gain must be declared. It may well be that the gain is less than her annual CGT exemption allowance and in that case there may be no additional tax due, however, it must be declared nonetheless.

I hope that helps.
.

Ian Cognito

10:51 AM, 24th April 2017
About 2 years ago

Thanks for your response, James.

Completing my wife's SA105 will not be a problem and, yes, the gain should be below the annual exemption. The current written valuation was obtained from the original selling agent following a recent inspection to ensure we knew the true market value.

However, I am not sure that this answers my question 3) about notifying HMRC.

My wife has until 31/01/18 to complete her 2016/17 tax return, yet notification via Form 17 would be required within 60 days of the date of Declaration of Trust i.e. by 31/05/17.

From your answer, I infer that there is no requirement for my wife to notify HMRC other than via the UK Property pages of her tax return. Is this correct?

Mark Alexander

11:13 AM, 24th April 2017
About 2 years ago

Reply to the comment left by "Ian Cognito" at "24/04/2017 - 10:51":

Hello Ian

Yes that is correct, Form 17 is not applicable and HMRC don't need to be informed until you are required to complete your next tax return. Just one proviso on that, that assumes you're resident for tax purposes in the UK. If not, you only have 30 days to declare capital gains.

By the way, my name is Mark, not James, but I've been called a lot worse LOL 🙂
.

Ian Cognito

11:22 AM, 24th April 2017
About 2 years ago

Sorry, MARK. No idea where I got James from!

Yes, my wife is a UK resident, so notification will be via her tax return.

Many thanks for your prompt and unambiguous advice.

Mark Alexander

13:23 PM, 24th April 2017
About 2 years ago

Reply to the comment left by "Ian Cognito" at "24/04/2017 - 11:22":

You're welcome.

Thanks for the donation 🙂
.

Jethro Seaton

21:50 PM, 24th April 2017
About 2 years ago

I've a question. I bought my rental property when I was single, and got married 8 years ago. The property is still in my name only.

If I want to put 99% of the property into my wife's name for saving re income tax purposes do I simply print off (or pay a solicitor to do the same) and complete a declaration of trust form and put it in my filing cabinet once signed and witnessed, and then on the tax return adjust my earnings from the property income as I'll only be earning 1% now - or do I need to fiddle about with form 17, and then form AP1?

Mark Alexander

6:47 AM, 25th April 2017
About 2 years ago

Reply to the comment left by "Jethro Seaton" at "24/04/2017 - 21:50":

Form 17 only applies when changing the beneficial split of legal ownership between properties owned jointly between spouses. It's not required in your case because the legal ownership is not held jointly.

Beware Declaration of Trust documents you can get free on the internet. They are legal documents but often don't do the right job. For the sake of £250 + VAT Property118 Limited can ensure it is done properly.
.


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