Transfer of profits from property letting to wife?

by Readers Question

14:16 PM, 1st April 2015
About 5 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

Sunny K

14:30 PM, 4th April 2015
About 5 years ago

Reply to the comment left by "money manager" at "04/04/2015 - 12:09":

Tenancy managed services offered by many a lettings agent (charged at least 10%) include arranging deposit protection, answering tenant calls, periodic inspection, arrange repairs, arrange gas safety certificate, book keeping etc. One is perfectly entitled to contract a sold trader (wife) and pay her the going rate. I would be interested in know specific court cases against this practice.

money manager

14:41 PM, 4th April 2015
About 5 years ago

Reply to the comment left by "Sonny Kagdi" at "04/04/2015 - 14:30":

Sonny, I wasn't disagreeing with you but, to some extent, with the previous poster. Certainly, if one is self-managing and letting the properties all that you describe could be included. Even where you use an agent, as we do, you would soon lose control of the bottom line if you didn't take an active part in overseeing maintenance contractor work and charges. On one point of your solution, whereas rent income can't have pension contributions made in respect of it the "contract trader's" fee income will, very neat.

0:16 AM, 5th April 2015
About 5 years ago

Reply to the comment left by "money manager" at "04/04/2015 - 12:09":

Hi,

This is the first one that came to mind and was easiest to find.

http://www.gabelletax.com/blog/2013/08/16/jointly-held-property-splitting-rental-income-between-spouses/

0:24 AM, 5th April 2015
About 5 years ago

Reply to the comment left by "Sonny Kagdi" at "04/04/2015 - 14:30":

I see what you mean. A reasonable approach I think, but the whole of the rental income is still assessable and taxable only on the husband. The fees/wages paid to the wife are expenses of the rental business and as such are tax deductible against the rental income (just like any other rental expense) assessed on the husband. But I don't think this is what the husband is trying to achieve. Also, problems will arise if the spouse was to receive too much salary. HMRC is likely to raise an enquiry into the commerciality of the arrangement.

money manager

5:21 AM, 5th April 2015
About 5 years ago

Reply to the comment left by "Kugan Lingam" at "05/04/2015 - 00:16":

It's is a good example but NOT of the poster's question or situation. This appeal fell on the reallity. The properties were jointly held (how not specified in the Gabelle report) no declaration to the contrary had been made and there was no other supporting evidence of the contenion. It deserved to fail.

As the report states, the appelants could gave taken protective steps but had not done so.

I can't post further for a while, book to write, deadline looms, and ed. going nuts.

money manager

6:12 AM, 5th April 2015
About 5 years ago

Reply to the comment left by "Kugan Lingam" at "05/04/2015 - 00:24":

Two last exceptions. Your last post refer to the commerciality of the wife's salary. In Sonny's example the wife would be charging management fees, rather than being employed by the husband. I referred to the commerciality issue of salary myself but only in the context of comparative employment. There are several cases on varying aspects of family employment and what is reasonable (e.g. MPs/wives/other family) but even then results are variable. Fees paid are entirely different. I pay 6%+VAT for full mngt. up north but down south? 14%? The self-employment business use and deuctability test for the husband should provide wider scope.

One last point on this aspect. In HMRC's PIM they make statements that run totally counter to all our points giving the impression, virtually, that anything goes. It's never been tested, and no professional I know would rely on it. HMRC often write tosh,

And finally, in your post 04/04/2015 at 11:27 you refer off thread to IHT."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" I think you are refering to the 2013 changes. Previously, a UK dom making transfers to a non-dom had a limited NRB of £55000, that changed to a full NRB but not full inter-spousal transfer unless the following step is also followed. For transfers from a non-dom to a UK dom an election can be made to be treated as UK dom for the purposes of IHT only. Although that gives the full interspousal transfer relief, it also exposes the entireity of the non-doms overseas assets to assessment. Ouch!

Colin Dartnell

14:33 PM, 5th April 2015
About 5 years ago

Reply to the comment left by "money manager" at "05/04/2015 - 06:12":

Nothing to do with this post really but, '14% down south', you are being robbed. I would find another agent. Look up LettingSupermarket.com if they are in your area.

money manager

17:31 PM, 5th April 2015
About 5 years ago

Reply to the comment left by "Colin Dartnell" at "05/04/2015 - 14:33":

Don't, haven't, wouldn't. All my interests are in the north and that 6% was negotiated. I was just using, apparently the low end range, of Sonny's comment to illustrate that what fees might be reasonable are to say the least, flexible i.e. if you can point to a commercially available comparator the HMRC can't really contend it.

Sunny K

18:14 PM, 5th April 2015
About 5 years ago

Agree. I don't use agents for vast majority of my properties but have been quoted 21% by F*****s, 17.5% by C****** etc. Letting supermarket is a good choice though I have never used their services.

Daniel Gregory

15:18 PM, 26th October 2015
About 4 years ago

Hi Ken, I am in a similar situation, were you able to use a deed of trust?

How do you stand regarding the mortgage relief if you did?

I have contacted buytoletconveyancing.co.uk, but so far have not had an answer to my original contact.

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