What’s the process for creating a deed of trust to transfer rental income to spouse?

by Readers Question

5 months ago

What’s the process for creating a deed of trust to transfer rental income to spouse?

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What’s the process for creating a deed of trust to transfer rental income to spouse?

As a married couple we own a house which we have been renting out for the last 18months. As I am receiving an occupational pension and state pension that put me in the 40% tax band I wish to transfer the benefit of this property to my wife. I have read that a deed of trust will allow us to do this.

I have received a quotation of £350 from solicitors to prepare this and when I asked how this is then used to ensure HMRC accept the revenue has been transferred they stated “you should be able to produce the executed deed itself to HMRC as sufficient evidence of who is entitled to the income ”

Would landlords that are members of Property118 and that have executed deeds of this sort agree with this .

The solicitors then say if I need any tax advice or have any dealings with HMRC they would need to refer me to an accountant.

Since there are no firms that I am aware of that employ accountants and solicitors how do you ensure this works successfully?

Many thanks

Chris

Comments

Neil Patterson

5 months ago

Hi Chris,

Your solicitors are not wrong, but there is quite a bit of background information missing.

There is no CGT payable on the transfer of beneficial ownership between spouses, but there may be a Stamp Duty (SDLT) liability in some cases.

If the property is in your sole name and there is a mortgage on the property you can only transfer up to £40,000 as a proportion of the mortgage before stamp duty is payable. Eg. If the property is worth say £200,000 and the mortgage is for £100,000 you can transfer a maximum of 20% before the transaction needs to be reported to the Stamp Office and SDLT becomes payable. For sole ownership you are not required to complete and submit Form 17 to HMRC, but you need to keep the Declaration of Trust on file to produce if requested by HMRC and your wife would also need to register for self assessment tax returns.

If the property is already in joint ownership (as I think you mention in your question) then your wife is already jointly and severally liable for the whole mortgage, so regardless of the amount, you can transfer a split of up to 99% in her favour without needing to consider SDLT liability. For joint ownership an amendment would be required at HM Land Registry to sever the joint tenancy basis of ownership and to record the property ownership as tenants in common. You would also need to complete a Form 17 for HMRC to detail the new percentage split, because HMRC otherwise assume a default split of 50%.

In both cases your mortgage arrangements would be unaffected. However, if you have a mortgage with Capital Homeloans or Fleet Mortgages you should note their T&C’s specifically preclude the transfer of beneficial interest, other lenders do not have such conditions.

Property118 can arrange to have the necessary legal work done for you for if you wish for £250 plus Vat (£300) per property, which includes the Declaration of Trust.

If you have more than one property it is worth considering creating a partnership as you can then split the income disproportionately to maximise your tax allowances. It would then also be best to have a Tax Consultation with Mark Alexander as it will save you what it costs and we have a no quibble money back guarantee if you are not happy. Please see our Tax Planning page >> https://www.property118.com/tax/

I hope that helps 😊

wanda wang

5 months ago

Hello
I have asked HMRC regarding the income split, they said you can do 100% to 0% split. Does mean Declaration of Trust Need to be 100% and 0% split? Or you can just fill the form 17 with 100% and 0% split even the Declaration of Trust is 99% and 1% split.
Regards
wanda

Nick Price

5 months ago

Your Declaration of Trust needs to evidence the proportion that you declare on Form 17. You cannot have different figures.

Also a copy of the deed (preferably a certified copy) is all that you need to send with the Form 17.

Mark Alexander

5 months ago

Reply to the comment left by Nick Price at 09/12/2017 - 11:52
I agree.

If you were transferring full ownership a Deed of Gift might be more appropriate

wanda wang

5 months ago

Reply to the comment left by Mark Alexander at 09/12/2017 - 11:59
Does need lender to consent?
Thanks
wanda

Mark Alexander

5 months ago

Reply to the comment left by wanda wang at 09/12/2017 - 12:24
That depends on the lenders T&C’s, please see Neil Patterson’s comment

wanda wang

5 months ago

another thoughts, if it is full ownership, then you don't need to split income, don't you? So how can 100% to 0%split it is possible?
thanks
wanda

Tony Church

5 months ago

Hi I would like to do something similar to this, I need to transfer my rental property into a Life time Declaration of trust. Apparently I can transfer the equity and the part of the property that is paid off by the mortgage but no the portion that is still being paid down. Can someone confirm this and let me know if some one can assist me to set up the Declaration of trust and what the procedure is?

Mark Alexander

5 months ago

Reply to the comment left by Tony Church at 09/12/2017 - 16:57
Hi Tony

A Declaration of Trust is not an entity, as your question appears to imply. I suggest you take professional tax advice, or at the very least do a lot more research on what a Declaration of Trust actually is and does.

Thanks very much Neil and Mark for your helpful comments. We do have another buy to let , a flat in S E London . I think if we were going to keep it I would be thinking about a partnership but at the moment having spoken to a couple of brokers we would have to put £50k back into it ( having raised 90k two years ago to invest in the house referred to above )
But , assuming your approach is then to go to a Ltd Co. look what the chancellor has done to capital gains allowances for Ltd companies in the budget . Anyway we are going to sell the flat with a capital gain of £100k +
Any thoughts on best approach to mitigate tax on that. Looks like about £18k
We plan to invest that in our residence and then maybe sell up 5 to 10yrs and pocket that gain tax free . We did that in June this yr and realised over £300k gain tax free . I wonder how long tax free gains on your residence will last. I think in the States I read it's capped at 250k . How do I proceed with your offer for the deed of trust ?

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