RE: Distributing rental income to spouse to reduce tax

mja12

Dear All,

I was wondering if you could help me. Prob a quick yes/no but I can't seem to find the answer.

I own a property and will be starting SA returns on the rental income. I am recently married. I understand I am able to place my spouse on the deeds of the house but can distribute 100% of the rental income to her (I am higher rate tax payer; she isn't)

Can I apply this to the entire tax year 2011/2012. We married only 3 months ago.

Any advice would be greatly appreciated.

Many thanks.

heretolearn_2

If you both own the property then the income is split between you, you can't allocate it all to her.

mja12

Thanks.

Is it an option then to gift more of the property to my wife (i.e. 90%) and would the rental split follow the same proportion?

Mikeyorks

mja12 wrote: »

Thanks.

Is it an option then to gift more of the property to my wife (i.e. 90%) and would the rental split follow the same proportion?

If you intend to hold it jointly and attempt to persuade HMRC that the rental income predominantly belongs to your wife - you're likely to draw significant attention to your Return. You need to submit Form 17 to get the unequal split ....... and provide ample evidence that your wife is genuinely entitled to more than 50% of the income. Which you will be unable to do.

http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM9870.htm

mja12

Right. That seems clear. So we're looking at 50:50 ownership with the same tax split.

Can this be backdated to the beginning of the tax year. Trying to establish whether it's worth doing - Im assuming I will need to pay solicitors fees for the transfer. As I am hoping to sell in the next few months it's prob not worth the expense unless I can benefit for the whole tax year.

Pennywise

To get all the rent taxed on her, she'd have to be the 100% beneficial owner. For married couples, the default position is 50:50 but you can elect to have the income taxed in proportion to the ownership shares.

BoGoF

I doubt it can be backdated.

In view of the fact you intend selling it, have you considered the impact any transfer would have on Capital Gains Tax? If you did go say 100% to wife then you are losing the benefit on your Capital Gains exemption.

mja12

Thanks everyone.

Still trying to fully understand the CGT. I lived in the property for 10 years and moved out in 2010 so I understand if I was to sell in 2012 I would not be liable to any capital gains.

My wife moved in with me 2009-2010 for 6 months before we both bought a house together. If she was added to the deeds would she also be exempt as it is within 3 years (although officially she would probably be considered as living with her parents)?

CLAPTON

mja12 wrote: »

Thanks everyone.

Still trying to fully understand the CGT. I lived in the property for 10 years and moved out in 2010 so I understand if I was to sell in 2012 I would not be liable to any capital gains.

My wife moved in with me 2009-2010 for 6 months before we both bought a house together. If she was added to the deeds would she also be exempt as it is within 3 years (although officially she would probably be considered as living with her parents)?

bad idea

if you transfer half the property to her now then
she will not have had the property as her principal private residence so will NOt be entiteld to PPR relief or the last three years.

you will only be entitled to PPR etc only for half the value

Pennywise

mja12 wrote: »

Thanks everyone.

Still trying to fully understand the CGT. I lived in the property for 10 years and moved out in 2010 so I understand if I was to sell in 2012 I would not be liable to any capital gains.

My wife moved in with me 2009-2010 for 6 months before we both bought a house together. If she was added to the deeds would she also be exempt as it is within 3 years (although officially she would probably be considered as living with her parents)?

Not wise. If you give some or all of it to her, her CGT base cost becomes your base cost, i.e. the price you paid 10 years ago. But, she doesn't receive your 10 years of it being your PPR. She only gets PPR if she lived in it whilst she owned/part owned it, for the time she lived in it and the final three years. If she never lived in it whilst she part owned it, then she gets no PPR at all - if she lives in it for a short time, she gets the 3 year exemption, but no relief on the gain made for all the earlier years (which you'd get relief for if you continue to own it).

It gets very complicated and you'll have to do the sums, but potentially a few tax traps and you could end up paying more in CGT than you saved in Income tax on rents.

And no, the rental split can't be back dated - any split will only arise following her being given a share in the property, i.e. from now forward.

mja12

Well. There we are. Thanks you very much for the clear answers. Obviously that was a bad idea!

Thanks again!