Transfer of profits from property letting to wife?

by Readers Question

14:16 PM, 1st April 2015
About 4 years ago

Transfer of profits from property letting to wife?

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Transfer of profits from property letting to wife?

I have 5 rental properties all with BTL mortgages. The properties are in my sole name, as are the mortgages.

The income from the 5 properties is circa £10,000 net of allowable expenses. As a 40% taxpayer this is quite a hit but, I married in 2014 and my wife has taken early retirement with no income.

Obviously we need to make the most of her Tax Allowance, but I’m not sure of the best at forward. I am aware I can transfer the houses and mortgages into joint ownership with associated costs for each house, and then split the Tax bill.

Would this be the best solution?

Kenbride

 



Comments

Neil Patterson

14:27 PM, 1st April 2015
About 4 years ago

Hi Ken

No need to go to the expense of messing around with mortgages, take a look at this >>> http://buytoletconveyancing.co.uk/

Our specialist Buy To Let Conveyancing team can help landlords to save tax and arrange or rearrange ownership of equity in property for a variety of purposes.

money manager

12:07 PM, 2nd April 2015
About 4 years ago

A declaration of trust in respect of the income on it's own won't, or at least is very unlikely to result in it being taxed on the spouse. It is likely to be caught by the Settlement rules. In essence unless there is an outright and irrevocable gift of more than just a right to income that income will be taxed on the "donor".

See http://www.taxinsider.co.uk/1057-Making_a_gift_Avoid_the_settlements_trap.html

Ken Smith

13:07 PM, 2nd April 2015
About 4 years ago

Thank you for your comments. As I understand it, as long as I gift the properties outright, and arrange for the rent to be paid into an account in my wife's name, then the full income will become her tax liability, and I do not need to inform the mortgage companies?

money manager

14:00 PM, 2nd April 2015
About 4 years ago

Reply to the comment left by "Ken Smith" at "02/04/2015 - 13:07":

Yes, the gift of asset will together withthat single bank account transfer the income. Not sure about the lenders, what's in your T&C? If teh properties are leaseholder there will almost certainly be a requirement to notify of any form of "disposition" or similar.

Ken Smith

15:05 PM, 2nd April 2015
About 4 years ago

Confused now, I seem to be back where I started with £140 plus vat for each house to put my wife's name on the mortgages, and 3 of the 5 are indeed leasehold!

Neil Patterson

15:26 PM, 2nd April 2015
About 4 years ago

Reply to the comment left by "Ken Smith" at "02/04/2015 - 15:05":

Hi Ken,

Best speak to our experts as I would not want to give you the wrong advice.

Please see >> http://buytoletconveyancing.co.uk/

Ken Smith

15:30 PM, 2nd April 2015
About 4 years ago

Thank you Neil, I will.

Sunny K

10:57 AM, 3rd April 2015
About 4 years ago

A possible solution might be to contract your wife to manage these properties including book keeping, arranging repairs, certificates, property inspection etc. I know few agents charge 15-20% of rent to do these and hence you can justify those payment (not that you have to justify the pay rates to you contractors!). She should register with HMRC as self employed sole trader and declare her income. She might end up paying some NI but it will be quite low.

11:27 AM, 4th April 2015
About 4 years ago

Hi,

I can't comment from a mortgage perspective but I can give you some guidance on the tax implications of what you are hoping to achieve in terms of transferring some of the rights to the income to your spouse.

Transfer of assets to spouses are exempt from inheritance tax charges provided your spouse has the same domicile as you I.e. you both are either UK domiciled or non UK domiciled.
There is also no issue concerning capital gains tax.

You then need to get a solicitor to prepare a deed of trust or declaration of trust to get your wife's name on the properties legally and allocate a share of it to her (or you could even allocated it on a 0:100% basis to make sure use of your wife's allowances and lower rates. This should be a tenants in common rather than joint tenancy.

Once you have done that you have to file a Form 17 with HMRC within 60 days to tell them that you are allocating 100% of the income (or whatever % stipulated in the deed of trust) to her.

This will let you achieve your goals but I would strongly advice speaking to a tax adviser and solicitor to get these arrangement done properly.

Unfortunately the property rental tax rules concerning properties held by husband and wife are different and stricter than those held by non spouses.

Merely claiming that your spouse is managing the property and hence should be entitled to a share of the income does not work. There have been several court cases like this and the courts have categorically rejected this approach.

Hope this helps.

In wrote this in a rush to the train stop!

money manager

12:09 PM, 4th April 2015
About 4 years ago

Reply to the comment left by "Kugan Lingam" at "04/04/2015 - 11:27":

"Merely claiming that your spouse is managing the property and hence should be entitled to a share of the income does not work." but if she (or anyone else) DOES actually perform some task they are entitled to charge fees. I doubt that there would be any issue of an appropriate level of fee either, this situationbeing different to that of a spouse employed within a Ltd co.

AS in many other area of tax a mere assertion as to a position will not overrule reallity;
If you can quote specific cases to the contrary in that circumstance I'd be interested to read them

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