To Trust or Not To Trust – Transferring To Spouse

by Readers Question

1:35 AM, 14th June 2017
About 2 years ago

To Trust or Not To Trust – Transferring To Spouse

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To Trust or Not To Trust – Transferring To Spouse

I have 2 rental properties. One rental property is mortgage free and the other property has a mortgage. Both the rental properties are under my name. My wife has no income and hence doesn’t pay any tax. 

I am considering transferring my mortgage free property to my wife and then getting a mortgage on this property and paying off the other mortgage and then transferring this property on to my wife’s name. My wife would have then have both the properties title deeds registered under her name.

Are there any alternatives to this strategy where I could potentially keep control but also to maximise the tax benefits as she is a non-tax payer?

What are the drawbacks to having a declaration of trust or beneficial trust as they seem to be quite confusing, as it is an unknown territory for me.

Any advice greatly appreciated.

M James


Mark Alexander

1:53 AM, 14th June 2017
About 2 years ago

The title of your post made me smile. Before I read you questions I thought you were going to ask something along the lines of; what if I transfer properties to my spouse and she leaves me?

Believe it or not, that is one of the most frequently asked questions (from men and women) when I recommend transferring beneficial interest in properties during a tax consultation. Accordingly, I am going to take the liberty of answering that question first.

If a spouse want a divorce the legal and beneficial ownership of property is generally disregarded by the Courts when ordering settlements. They prefer you to agree on the split of assets but if you can't they will make an order for assets to be divided in a way they feel is fair and proper.

Now turning to your question/strategy.

From an SDLT point this makes a lot of sense. However, once you have transferred the legal title of the unencumbered property to your spouse, how will you them remortgage it? You have already said you spouse doesn't have an income. On this basis, what makes you think your spouse would get a mortgage?

If you transfer the beneficial ownership to you spouse, then all she has do do is agree to you remortgaging the property. The transfer of beneficial ownership is of no business of the mortgage lender and it is completely invisible to them. there is no legal requirement to register the Declaration of trust with HMRC.

Once you have completed the remortgage, the net proceeds will then technically belong to your spouse so you should pay that money into her bank account. in turn, she can then can pay off your mortgage and you can then transfer the beneficial interest on the second property to her via a declaration of trust.

Even leaving aside the issue of whether your spouse would qualify for a mortgage, the Declaration of trust route is both cheaper and quicker.

From a tax perspective, providing the Declaration of trust is drawn up in the right way, your spouse will be able to declare all of the rental income and finance costs on her own self-assessment return form.

Property118 Limited charge £250 + VAT for each Declaration of Trust. This is a fixed fee and includes all disbursements.

Mike Woodfine (Admin and Compliance Director of Property118 Limited) can assist you to prepare the necessary paperwork, including searches. Searches are required for compliance purposes; at least in part to determine there are no mortgages which would constitute a reportable consideration for SDLT purposes.

If you would like to proceed on that basis he will require the following:-

1. The full postal address of the property
2. Scanned proof of identity (passport or driving licence) for you and your wife
3. Scanned proof of address dated within the last three months (utility bill or bank statement will suffice) for you and your wife
4. The name address and occupation of the person who will sign the Deed as your witness. This doesn’t have to be a professional, but cannot be a family member.

On receipt of the above Property118 Limited would raise an invoice for the work.

On receipt of payment the Declarations of Trust will be emailed to you in PDF format. It’s then simply a case of having it signed and presenting it to your conveyancing solicitor dealing with the sale. There is no requirement to register the Declaration of Trust with HM Land Registry.

Chris Novice Shark Bait

11:14 AM, 14th June 2017
About 2 years ago

I do not wish to hijack MJ's question but have 3 properties in my sole name and 7 in 50:50 arrangements with my partner (in life of 20 years standing). We are not married. We would enter into a civil partnership for heterosexuals if this was allowed but as yet bizarrely it is not!

I am confused as to where we stand but need to act as I am retired on a pension and severely affected by section 24. My partner is working part time and is not as things stand. She is eligible to take early retirement next year on a reduced pension, (less than salary) so there is scope for beneficial interest transfers and inclusion on the deeds of those owned by me at a modest financial commitment level for which I am hoping no SDLT would be needed.
How would that work for an unmarried couple?

Mark Alexander

11:26 AM, 14th June 2017
About 2 years ago

Reply to the comment left by "Chris Novice Shark Bait" at "14/06/2017 - 11:14":

Hi Chris

For your circumstances I would suggest transferring just 1% of beneficial ownership to stay below the £40,000 SDLT threshold and crystallise less than capital gains than your annual CGT allowance could absorb. Then form a partnership to enable you to allocate profits disproportionately to ownership.

This strategy is equally applicable to people who are not married as it is to people who are.

We have produced an eBook which explains this strategy in detail and costs just £5.99. Please see the link below.

Chris Novice Shark Bait

12:03 PM, 14th June 2017
About 2 years ago

Thanks Mark, I will give your e- book a go. I have dallied with the thought of consulting you but we have the sword of Damocles hanging over our heads in relation to Mortgage Express which rather complicates matters. Ducks need to be in a row. They just won't get in the right order. I rarely comment but avidly read. Keep up the good work and good luck to M.J. You are on the best property site ever.

M James

17:41 PM, 15th June 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "14/06/2017 - 11:26":

Many thanks Mark, will do!

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