transferring portion of the house to wife

horngkai

My current flat is in my name and we were thinking of getting a new place and renting this current flat out. For tax purpose, it would be good to have the flat under my wife name but to avoid paying for stamp duty.

Current value around £140k
Left on mortgage around £110k

Can I transfer £125k (90%) share of the property to my wife and I will hold the remaining £15k share? Will this work? And if so, when it comes to rental income for tax purpose, do I pay tax on the 10% share and my wife on the 90% share?

Also, from BTL mortgage point of view, my wife doesn't earn a lot (under £25k theshold), would getting a 75% LTV be a problem? It will be a joint application but due to the 90/10 split, I am not sure how lender assess this normally.

Hope I am making sense with the question. Thanks for your help in advance.

lincroft1710

You will need your lender's agreement to transfer any share of your property to a third party. Would it not be better to ask your lender what their requirements/rules are re BTLs and see if your plan is still feasible.

Thrugelmir

Mortgage wise. You and your wife are jointly and several liable for the whole debt. Mortgage companies do not apportion loans.

How you treat the ownership is a matter for you personally.

simonfitba

Thrugelmir wrote: »

How you treat the ownership is a matter for you personally.

Would they not have to take legal steps over the ownership for the purposes of tax?

00ec25

simonfitba wrote: »

Would they not have to take legal steps over the ownership for the purposes of tax?

correct - as they are married then tax law is very specific.

The share of rental income for each person must mirror exactly the actual legal ownership portion, either this is 50/50 because its a joint tenancy, or its in some other portion which is supported by the change in owner to tenants in common with the proportion registered at the land registry AND with HMRC notified of those shares via a Form 17 declaration

horngkai

We have been living in our current property for the last 5 years. If I were to change to joint name when we go BTL, how would CGT be treated in the future? Will my wife need to pay any CGT if its sold within 3 years?

In terms of Stamp duty, if I only transfer £125k of the property value to my wife, she would be exempted from paying SDLT am I right?

00ec25

horngkai wrote: »

We have been living in our current property for the last 5 years. If I were to change to joint name when we go BTL, how would CGT be treated in the future? Will my wife need to pay any CGT if its sold within 3 years?

if she has never lived in it as her main home whilst also being an owner then she would not be entitled to private residence relief and so overall the pair of you may indeed end up paying more CGT when it is sold than if it was just in your name

however, if you plan to sell in 3 years then is this a real risk? As an owner she can set her share of the gain made against her personal allowance of 10,600, it is likely to gain that much since you both moved out and since she became an owner?? How much will you save as a couple on income tax? Basic maths will tell you if its a good investment to have her as an owner whilst its let out and neither of you are resident

horngkai wrote: »

In terms of Stamp duty, if I only transfer £125k of the property value to my wife, she would be exempted from paying SDLT am I right?

correct - make sure you document the basis of your valuation and the share transferred very carefully!
http://www.hmrc.gov.uk/sdlt/calculate/transfer-ownership.htm

horngkai

This is her main residence over the last 5 years as well. So would she benefit from 3 years tax free CGT?

camptownraces

horngkai wrote: »

This is her main residence over the last 5 years as well. So would she benefit from 3 years tax free CGT?

No because, as stated above, you are the only owner at present, your wife is not an owner. So even though it is her main residence, she doesn't qualify for this relief.

00ec25

horngkai wrote: »

This is her main residence over the last 5 years as well. So would she benefit from 3 years tax free CGT?

PRR cannot go back to before she was an owner, even though you are married. A wife does not inherit the husbands PRR status

BUT

your OP implies the transfer will be done on or after you move out so she would not get PRR as she was not in residence at point of transfer. HMRC does not measure occupation only in terms of length of stay, they also take into account the quality of the occupation - as a married couple under tax law you are deemed to automatically have the same main residence so if you no longer live there in reality she won't get PRR. Best therefore to do the transfer and delay the move for a sufficient time that you can show both of you really were living there as main home. This is where time serviced comes in , in law you could stay there 1 day and get PRR, in reality its more convincing if you are there for months: 1, 2, 3 ,4 ? After 6 months its no longer normally regarded as an issue as its then case proven

ALSO

if you do the transfer and then sell the property "soon" afterwards (eg: 1 - 6 months) HMRC may (it is not a certainty) take the view that the transfer was done as a tax avoidance measure and so will set aside (ignore) it and levy the CGT against you only.

There are posts on the tax cutting board where this has been discussed many times but few examples of it actually happening, it does however remain a real risk if you sell too soon

horngkai

Thanks for all the advice people. Much appreciated. Will have a good think about what we want to do then.