Transferring tax liability of BTL to partner

saucer

Thank you for looking and apologies if this has been adequately dealt with in the past.

We own a BTL flat, having a share of the freehold company and an accompanying long lease (this info may not be relevant). I am a HR tax payer, my wife is not, and unlikely to become one, although she is employed.

The flat, which is worth about 180k, is currently rented out and has just started making a profit after many years of loss, for which I have paid higher rate tax this week via self assessment. We have a low rate repayment mortgage (I know not so tax efficient but have had a long time and we would have to pay a lot more interest if remortgaged). There is about 70k outstanding on the loan.

My question is whether I am right in my that that I can shield us from HR tax by
1. Changing the ownership from joint tenants to tenants in common
2. Complete a Declaration of Trust regarding ownership, say 1 me, 99 her
3. Notify land registry regarding this via their appropriate form regarding this?

Does this sound like the best way forward to ensure that any profits are paid via my wife's tax? I am assuming that she would then declare 99% of the rent and consequent liability. I am aware that there could be implications for capital gains in the future, but think that it would save us a lot of tax payable between now and selling, which would be at least 7-8 years away, if at all. Is this type of process something we should pursue through a solicitor, accountant of IFA?

I would be very appreciative of your thoughts.

booksurr

1. yes
2. yes
3. yes
Step 4 - you must then send a Form 17 to HMRC as it is that document which HMRC requires before it will acknowledge your changed tax arrangements
https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

given the changes to mortgage interest rate relief from 2016/17 it is absolutely essential that you do this otherwise your tax bill will be considerably higher than at present after that date.

CGT can be "managed" by altering your share at a "suitable" date before sale. Contentious opinion as to how long before sale is "suitable", certainly must be before you begin marketing for sale, others say much (1 year?) before.

saucer

Thanks for that booksur..it implies I am on the right track.
Would you suggest that I go through a solicitor to do this, or is it more straightforward than that? I have seen firms offering this as a fixed price thing online, but not sure whether I wouldn't be better going to a solicitor, accountant or even IFA.

booksurr

saucer wrote: »

Thanks for that booksur..it implies I am on the right track.
Would you suggest that I go through a solicitor to do this, or is it more straightforward than that? I have seen firms offering this as a fixed price thing online, but not sure whether I wouldn't be better going to a solicitor, accountant or even IFA.

sadly as you need to change a mortgage the lender probably (ask them!) makes it compulsory that you use a full blown solicitor for the mortgage alterations.

Reason being the lender has come back against the solicitor under that person's professional indemnity and is required to comply with Council of Mortgage Lenders Manual (CML) which the Law Society requires solicitors to follow - so you are stitched up from both sides :wall: even though you already can see the forms themselves are easy in your circs (Land Registry AP1, TR1 and ID1)

saucer

Ah ok ..that makes sense. I'm assuming it won't mean anything regarding the fundamental terms of the mortgage?

kidmugsy

saucer wrote: »

The flat, which is worth about 180k, is currently rented out and has just started making a profit after many years of loss

May I ask why you held on to it if it routinely made a loss?

Cook_County

You'd also have to review any possible liability to SDLT on the transaction.

saucer

kidmugsy wrote: »

May I ask why you held on to it if it routinely made a loss?

We spent quite a lot in the early years trying to fix a damp/ condensation problem that incurred costs that we subsequently carried over. I also think we have kept the rent low which has meant the potential profit was also low. It is however in the long run a good investment and I think will remain profitable now.

saucer

Cook_County wrote: »

You'd also have to review any possible liability to SDLT on the transaction.

...you mean at the point of sale in the future, or is this relevant when altering the ownership arrangements now?

booksurr

saucer wrote: »

...you mean at the point of sale in the future, or is this relevant when altering the ownership arrangements now?

the latter
read example 2, the same principle applies no matter whether you have just got married or been married for years, the value of the o/s mortgage is consideration so subject to SDLT https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

you'll need to check the implications of the new SDLT rules if you do that after 1st April

saucer

Thanks again for all the help. I will get onto the solicitors :-)