Transferring my share of our buy to let to my wife to save tax

by Readers Question

11:26 AM, 16th January 2017
About 2 years ago

Transferring my share of our buy to let to my wife to save tax

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Transferring my share of our buy to let to my wife to save tax

My wife and I jointly own one buy to let property that is mortgaged. We have had the property for 6 years.

With the new tax changes coming in it is highly likely that my earning wills be pushed in to the higher tax bracket because of or buy to let investment within the next year or two. This will have further impact on our family finances as it will impact on our ability to claim child benefit.

My wife on the other hand works part time and earns about £17,000 per annum. She is therefore unlikely to reach the higher tax bracket with her earnings.

Is it possible for me to transfer my share of the buy to let property to my wife to save on tax? Would we have to then pay stamp duty on the transfer? What would we need to do it terms of the joint mortgage and also title deeds of the property, and how much is this likely to cost in fees?

The mortgage is on a tracker and so we are able to change this. Our other concern was whether my wife would be able to qualify for the buy to let mortgage on her part time wage?

Any advice would be much appreciated.

SD



Comments

Neil Patterson

11:29 AM, 16th January 2017
About 2 years ago

Hi,

Hopefully nearly all your questions will be answered on our Declarations of Trust page under the Legal Advice tab above.
Please see >> https://www.property118.com/need-become-rental-partnership/93073/

Please also see our tax advice page >> https://www.property118.com/tax/

Snippet of Declarations of Trust page below:

Using Up Basic Rate Tax Allowances

Ownership restructuring for tax purposes

Finance costs restrictions as per The Finance (No. 2) Act 2015 will only result in increased tax becoming payable where the total of ….

rental profit (as currently calculated for the 2016/17 tax year)
plus mortgage interest
plus other taxable income

…. exceeds £43,000 per person per annum (rising to £50,000 by the year 2020)

Profits and mortgage costs can be managed between spouses by transferring the beneficial ownership in property using a Declaration of Trust. The optimal split ensures both spouses utilise up to their full annual allowance as basic rate tax-payers. Once this is fully utilised it makes sense to form a Limited Company for any future purchases of rental property.

If you are not married and want to consider forming a partnership for tax purposes you need to take advice – please see the form below.

HMRC’s default position for taxation of rental income from jointly owned properties is that rental profit is split 50/50. This can be amended to any share (e.g. 99%/1%) subject to a Declaration of Trust and filing a Form 17 with HMRC within 60 days. Note that transfers to anybody other than a spouse could trigger Capital Gains Tax becoming payable.

Where property is owned by one person a Declaration of Trust can also be used to split the beneficial ownership. In that case Form 17 would not be applicable but HMRC would need to be informed of the arrangement and you would each need to complete tax returns for your share of rental profits in future years.

Mark Alexander

13:05 PM, 16th January 2017
About 2 years ago

The scenario you have outlined is virtually pound for pound identical to an example I wrote in one of the landlord tax tutorials - see >>> https://www.property118.com/free-landlord-tax-tutorials/

It is the second one down in the list of tutorials available for free download via the link above and is entitled "Tax planning opportunities where spouse earns less than £43,000 a year"
.

richard fleckney

5:59 AM, 18th January 2017
About 2 years ago

Excellent !!

Does anyone know a decent solicitor who could set up a Declaration of trust for us ?

I'm sorry to say the solicitor we use would probably complicate matters out of recognition !!

Thanks,

Richard

Mark Alexander

8:33 AM, 18th January 2017
About 2 years ago

Reply to the comment left by "richard fleckney" at "18/01/2017 - 05:59":

Yes, contact Mark Smith at Cotswold Barristers. Fixed fee of £250 plus VAT - link to member profile and contact form https://www.property118.com/member/?id=1945
.

Angela Wilcox

16:46 PM, 21st January 2017
About 2 years ago

Does anyone know if you can get a deed of trust done in Scotland. As far as I can see this is only possible in England and Wales. I have found nothing about it up here.

Jireh Homes

17:44 PM, 21st January 2017
About 2 years ago

Good question from Angela. Thought that as supporting evidence to HMRC Form 17 this would be acceptable across the UK, but Scotland does have a different legal system so maybe not!

Paul Harsley

19:42 PM, 5th November 2018
About a month ago

Reply to the comment left by Neil Patterson at 16/01/2017 - 11:29
In this case (married but property legally owned by higher rate tax payer) would the beneficial ownership transfer trigger SDLT for a BTL property?

Mark Alexander

20:14 PM, 5th November 2018
About a month ago

Reply to the comment left by Paul Harsley at 05/11/2018 - 19:42
In some cases yes, in others no. Professional advice is required. Please book a consultation


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