BTL – Tax Advice

PierremontQuaker03

Hi I have nearly paid for my house and am thinking of as borrowing as much money as I can againt it for another home and renting it out and buying another home.
The issue is that I am a high rate tax payer so I will pay more tax on my income than say my wife who only works part time.
I was thinking of how I can pay less tax, say ...can I transfer the house into my Wifes name so that my wife will get the income? But then does this become an issue borrowing funds against the property as my wife is a low earner – can I say become the guarantor of the BTL loan?

Thanks

jamesml

I think you'd be better off speaking to an accountant - there are numerous things I could suggest/talk about but I couldn't give you a definite answer on which would work the best. Or repost in the 'saving tax' section.

holly_hobby

There is really only one way to do this, in that you simply effect a transfer of equity* (refer note re mged properties below). taking the property from your sole ownership to joint ownership with your wife.

You have the deed held under a Tenants In Common arrangement (as oppossed to a Joint Tenancy basis), where you can unequally apportion the equittible/beneficial ownership, and which (as you are a higher rate tax payer), you weight the ownership in the name of the lower or non-tax payer (ie you wife), say on a 99/1 basis (or whatever you elect). Its on this basis that you will then declare your individual share of net rental income under your annual self assessments.

To facilitate the division of rent (othen than assumed by HMRC as 50/50 for a married couple), you then must complete and submit to HMRC, Form 17 http://www.hmrc.gov.uk/forms/form17.pdf - where you formally advise them of the division of property beneficial ownership, and thereby the future division and reporting of rental income under each individuals return.

Don't forget its only mge interest that is a permitted deduction, and in a case of equity release (classed as capital withdrawal) this is capped at a mge amount equal to the pch price or value of the property when it entered the business (commenced let). This doesn't mean you can't release more (value/ltv permitting), it just means that anything over this privial amount NOT a permitted deduction.

*The only fly in the ointment for a property that is/or to be mortgaged and in respect to adding her to the mge itself, either if remaining with your current lender or remortgaging to an alternative provider, will be if your wife's credit search will reveal any unexpired adverse credit history (which I am assuming she doesn't). With any min income requirements of the lender in this case, apparently met, given you alone are subject to HRT on income. It is also important to note, that the mge commitment (regardless of how the beneficial ownership is held) remains jointly and severally liable.

Have a chat with your tax practitioner about this, but the answer is yes, effecting a TOE into your wifes joint name (as discussed above), is a sensible way to mitigate your tax exposure in this area, but with the trade off that she will also become legally responsible/pursuable for servicing the mge.

Hope this helps

Holly