Declaration of trust

thegentleway

Hi,


I am the sole owner of a rental property and I would like to pass some of the rental income to my girlfriend. Does anyone know how to do a declaration of trust and how it works?


Thanks,


Tom

Pixie5740

What is it you are trying to achieve? Do you just want your girlfriend to have some extra income each month? Do you want to jointly own the property with her because you think it will be more tax efficient?

Do you own the property outright or do you have a mortgage?

thegentleway

Trying to achieve a lower tax bill. She gets half the rent but as property is in my name, it all goes on my tax bill and puts me into 40% bracket. If we could split it then we could stay in 20%. We don't want to jointly own the property because we want her to be able to be a first time buyer for next property. I own the property outright but will be getting a mortgage in March to buy next property.

HappyMJ

thegentleway wrote: »

Trying to achieve a lower tax bill. She gets half the rent but as property is in my name, it all goes on my tax bill and puts me into 40% bracket. If we could split it then we could stay in 20%. We don't want to jointly own the property because we want her to be able to be a first time buyer for next property. I own the property outright but will be getting a mortgage in March to buy next property.

If you are already a property owner you won't be considered a first time buyer for the next property.

If you want to become joint tenants on this property you can split the income however you want. It's quite hard to unwind if your relationship breaks down.

You could take out a buy to let mortgage on the existing property releasing equity from it and put the money you've realized in your girlfriends name. The interest you pay will become a tax deduction against your rental income reducing your income and the interest your girlfriend earns will be taxable at her marginal rate. If your relationship broke down she can send you the money back to you.

If you don't think giving your girlfriend tens of thousands of pounds is a good idea you could put the money in your own name and earn interest tax free such as ISA's or from next year you can earn £1,000 tax free anyway.

Pixie5740

I'm pretty sure that if you don't want to jointly own the property with her and keep it solely in your name then you cannot share the rental income for tax purposes. It's one or t'other. You own it jointly and split the rental income or you own it in your name and don't split the rental income.

Edit: You might be able to employ her as your letting agent though where she receives all the rent and passes on the remainder after her fees to you. I don't know if it's allowed though so you'd need to check.

sheramber

Have a read of this

http://www.deedoftrust.co.uk/index.php/guidance/hmrc-guidance

Examples

Settlements legislation

A house is held in the sole name of A, and the Land Registry documents confirm this. The house is rented out and the rents are paid to A. A claims that all the rent is taxable on his wife B.

A produces a ‘trust deed’. A claims the ‘trust deed’ transfers the right to income to his wife. But even if the trust deed does validly transfer the right to all of the income from A to B, that would constitute a settlement of the right to income, because A would still retain an interest in the property itself. Consequently the settlement would be caught by ITTOIA/S624 and all the income would remain taxable on A.

Joint ownership is not in point here. The property is not held 'in joint names', so ITA/S836 is not relevant. That section refers to 'property held in the names of a husband and wife etc'.

thegentleway

Pixie5740 wrote: »

I'm pretty sure that if you don't want to jointly own the property with her and keep it solely in your name then you cannot share the rental income for tax purposes. It's one or t'other. You own it jointly and split the rental income or you own it in your name and don't split the rental income.

Edit: You might be able to employ her as your letting agent though where she receives all the rent and passes on the remainder after her fees to you. I don't know if it's allowed though so you'd need to check.

Good thinking but I would have to register as an employer, are there any downsides?

sheramber wrote: »

Have a read of this

http://www.deedoftrust.co.uk/index.php/guidance/hmrc-guidance

Examples

Settlements legislation

A house is held in the sole name of A, and the Land Registry documents confirm this. The house is rented out and the rents are paid to A. A claims that all the rent is taxable on his wife B.

A produces a ‘trust deed’. A claims the ‘trust deed’ transfers the right to income to his wife. But even if the trust deed does validly transfer the right to all of the income from A to B, that would constitute a settlement of the right to income, because A would still retain an interest in the property itself. Consequently the settlement would be caught by ITTOIA/S624 and all the income would remain taxable on A.

Joint ownership is not in point here. The property is not held 'in joint names', so ITA/S836 is not relevant. That section refers to 'property held in the names of a husband and wife etc'.

Thanks for the link, deed of trust doesn’t work, that’s annoying!

Pixie5740

thegentleway wrote: »

Good thinking but I would have to register as an employer, are there any downsides?

Would you? I don't think landlords usually register as employers when they engage the services of letting agencies. Perhaps "employ" was the wrong word to use, maybe "engage her services as a letting agent" might have been a better way to put it.

I really don't know the ins and outs of it though. Maybe HMRC have already cottoned on to this sort of arrangement, you'd need to check.

booksurr

her role as your "agent" would only work if she :
a) kept records proving she genuinely did "some" work
b) the rate you paid her was commensurate with the work done and consistent with that charged by genuine agents (so making her a majority recipient would be rather foolish)

fail either of those and it will be seem for what you and I know it to be - deliberate attempt at minimising tax given that it is you, and you alone, who are entitled to the rental profit.

Pixie5740

See, I knew I couldn't out-fox HMRC.

thegentleway

booksurr wrote: »

her role as your "agent" would only work if she :
a) kept records proving she genuinely did "some" work
b) the rate you paid her was commensurate with the work done and consistent with that charged by genuine agents (so making her a majority recipient would be rather foolish)

fail either of those and it will be seem for what you and I know it to be - deliberate attempt at minimising tax given that it is you, and you alone, who are entitled to the rental profit.

As I’ve said above, she gets half the rent. I’m not trying to fiddle system and lower my tax bill for the sake of it. I’m just trying to find out if there is a way to split the rent so her half is on her tax bill instead of mine…