Tenants in Common - 99% to Wife

ianpalmer2007

Hi - we are thinking of renting our 2nd home.
The small house we live in belongs 100% to my wife of 3 years with a small mortgage (4 years to go). My flat is going to be rented (currently 100% owned by me with a small mortgage - one year to go)

It suits us to live where we live and the flat has better potential but can I set up a Tenants in Common with my wife getting 99% or 100% of the rental income as she does not use her tax allowances whilst my pensions will mean I pay tax on the rental income.

I am not worried about Capital Gains / Inheritance tax at this stage - I just want to know if I can use up her tax allowances and save the 20% for the next 5 or so years and then we will plan again.

kingstreet

If you plan to try this before the mortgages are repaid, your first port of call should be the mortgage lender for your wife's property. They will decide if they want to add you to her other mortgage and deeds.

Once the lender has made its decision, you'll then need legal representation where you can discuss the options such as tenancy in common. For the property you are planning to live in, I'd say a normal joint tenancy would be fine, unless she would want to leave her share to someone else on death?

I don't see the reasoning for the 99% + 1% idea, TBH?

Given the reasons why you want to do this, I think I'd wait until the mortgage is paid off on yours, then transfer it completely into your wife's name. Make sure she updates her will to ensure it's left to you, just in case. She will then receive the rental income and be able to utilise her tax allowance. If there's any unused allowance, keep some savings in her sole name to generate sufficient return to fully employ it.

ianpalmer2007

Hi - thanks for the reply - just to clarify I don't want / need to go onto her property. I am a bit older than her and the flat is good insurance / rental income for her if I go before her which the stats say I will :-)

When she goes our 2 properties would be shared between 5 children and total current value of both is only £220k

I thought just putting the flat in her name would be seen as tax avoidance and wasn't sure if I could set up a Tenants in Common arrangement whilst I had a year to go on the mortgage?
I am hapy transferring completely to her but thought she might incurr tax as a capital gain if I did that.

Maybe leaving it a year would be simpler although that is still a year that would cost us £800 in income tax.

kingstreet

Ok. The issue with the other property would best have been left out. I got hung up in trying to cover both.

Your flat is just in your name and you want to get the rent without having to pay tax on it. Transferring it into her name is probably the easiest way of doing that and that will be easier when the mortgage is out of the way. Any plan to change the ownership now is going to involve the mortgage lender who you'll also need to ask for consent to let and I'm not sure what approach they'd take to that or your TIC idea. No tax implications for her until she sells the flat and makes a gain.

Could you use savings to repay the mortgage early?

Failing that, how much interest is actually being paid? Don't forget your mortgage interest, letting and maintenance costs are offsettable against the rental income for tax purposes.

Stick some figures in the mix and let's see what the impact will be.

Mortgage amount outstanding
Interest rate
Rental income
Letting and maintenance cost estimate.

ianpalmer2007

I would prefer to let mortgage run it's course so I will wait until it is paid off and take the hit for one year but at that point is the easiest / cheapest / legally acceptable way to completely transfer it to my wife though a Tenants in Trust arrangement and can I try a diy arrangement or do I need to go through a solicitor?

I know I have to complete a Form 17 but can we just transfer the house to her using on line templates?

This is a one off as we are not trying to build up a portfolio just minimising income tax and 5 years before she gets to pensionable age (2026) we will replan again

kingstreet

Once the mortgage is out of the way you can transfer it to her using the Land Registry form TR1.

Once the transfer is complete, you shouldn't have to worry about election forms and beneficial ownership as she will own the property and the income from it in its entirety.

If you do have any concerns or wish to explore the best way of approaching this further, it may be better to seek independent legal and/or accountancy advice.

http://www.hmrc.gov.uk/manuals/inmanual/in118.htm

IN118 - Couple can hold assets separately

Married couples or civil partners do not have to hold assets in joint names. They can hold them separately; and they can divide up joint assets so that they hold them separately for the future. Each spouse or civil partner is then taxed on the income from the assets each holds in his or her own name.

We have no objection to the division of joint assets where this is done genuinely. There may be problems where a division takes place but one spouse or civil partner retains some sort of interest in an asset which is held in the other's name. In such circumstances, the Settlements legislation in Chapter 5 Part 5 ITTOIA may apply and deem the income arising to belong to the original owner of the asset. Submit the papers to HMRC Trusts Head Office Edinburgh where this happens.

Transferring the property to her in whole would avoid any suggestion of a retained interest on your part.

ianpalmer2007

Learnt more in 30 minutes than endless reading of aged comments on various threads - thank you

kingstreet

ianpalmer2007 wrote: »

Learnt more in 30 minutes than endless reading of aged comments on various threads - thank you

Ian, believe me, if I've made any mistakes there will be a lot of people along to correct me during the course of the afternoon. We're all learning, one way or another.

bluekp

Hi Ian,

I've just completed a "Transfer of Beneficial Interest" via a solicitor for a similar reason to you.

My husband and I owned a second house jointly (50:50) which we rent out, he however is in a higher tax band so we transferred the house to be 99:1 in my name. We were advised to split it 99:1 rather than 100:0 so that when you come to sell the property you have each got your own capital gains tax allowance meaning you will likely pay less tax on any profit you have made on the property.

The transfer of beneficial interest itself seems to be a very basic document - I would suspect you could do this yourself without the aid of a solicitor but you would need to check.

HTH

ianpalmer2007

Bluekp - thanks for your information.
Without asking you the precise fees for doing this - did you get to 4 figures or did you do it for less?

I think I have seen a figure quoted of £495 for a similar valued property to mine and that included informing the Land Registry and local council etc

I had read about the 99:1 rationale and I suspect we might go that route even though we do not exect to sell in the future.

Ian

bluekp

Hi Ian,

I think I paid around £183 in total for the solicitor to draw up the document. I can PM you his details if you are interested.

Oops - just realised you didn't ask for the precise figure - but hey ho I don't mind!