Transfer buy-2-let tax liability to wife?

hatnezmaturestudent

Hello, I have joint buy-to-let mortgage with my wife. Can I transfer all tax liability (from rent income) to her as she has stopped working and does not have any earnings? Thank you

dori2o

You can do by using a Form 17 decleration, but it‘s not as simple as telling hmrc tht the income split is now 100% in your wifes favour, you will also have to provide evidence that the beneficial interest in the property has been formally changed with a decleration or deed. This would normally involve a solicitor, and your mortgage provider (assuming there is one) may refuse permission for you to make the change to the beneficial interest.

You need to be aware though that this will not only change the split for rental income for tax purposes, but legally the split in income means that whatever split you declare applies to CGT also if the property is sold. It also applies to the right to reside within or access to the property. (Though it does not affect the legal Title split which in the case of joint mortgages is generally 50:50 split unless otherwise documented within the mortgage agreement)

Finally, by adjusting the beneficial split by way of a deed or decleration, the income generated from the property becomes the responsibility of each idividual according to that split. So giving your wife the 100% would mean she is solely responsible for the money and you will have given up any claim to it.

Therefore by giving your wife the full beneficial interest in the property the income generated from it becomes hers and hers alone, even if you are still entitled to a 50:50 split of the title deed (i.e the value of the property itself).

One final thing to consider, and it‘s something I have had personal experience of dealing with in a professional manner.

In order to change the beneficial interest both parties have to sign the decleration under their own free will. However, should you decide that in 2 years time you want to change the beneficial interest back to 50:50 split, your wife would have to agree to this under her own free will, and will be entitled if she wishes to refuse to change the split.

The case I dealt with became very messy as one partner refused to change the benefical interest after it had been changed, lezving one party with a very large cgt bill.

booksurr

no you cannot transfer it

as a married couple the only way you can split the profit in anything other than 50/50 is to:
a) actually own the property in unequal shares meaning you would need to alter the legal ownership at the land registry to tenants in common;
b) you then use a declaration of trust to record whatever split you wanted eg: 99/1; and finally
c) register a Form 17 with HMRC

until all 3 steps are done HMRC will continue to regard you as 50/50

dori2o

booksurr wrote: »

no you cannot transfer it

as a married couple the only way you can split the profit in anything other than 50/50 is to:
a) actually own the property in unequal shares meaning you would need to alter the legal ownership at the land registry to tenants in common;
b) you then use a declaration of trust to record whatever split you wanted eg: 99/1; and finally
c) register a Form 17 with HMRC

until all 3 steps are done HMRC will continue to regard you as 50/50

You do not have to change the title ownership, merely the beneficial interst within the property.

booksurr

dori2o wrote: »

You do not have to change the title ownership, merely the beneficial interst within the property.

that does not agree with what your HMRC colleagues who write the technical manuals say:
"if the shares are equal there would be no possibility of a joint declaration on form 17 for tax purposes, so only a declaration in respect of unequal shares would be correct."
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem9851.htm

"In the case of real property, there is a restriction in Land Registry Form A. This restriction usually means that there is a tenancy in common instead"
http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM9230.htm

dori2o

booksurr wrote: »

that does not agree with what your HMRC colleagues who write the technical manuals say:
"if the shares are equal there would be no possibility of a joint declaration on form 17 for tax purposes, so only a declaration in respect of unequal shares would be correct."
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem9851.htm

"In the case of real property, there is a restriction in Land Registry Form A. This restriction usually means that there is a tenancy in common instead"
http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM9230.htm

It does help if you show the FULL QUOTE.

As TSEM9230 says, there are various ways this presumption can be displaced by evidence to the contrary - for example, a valid declaration of trust in equal or unequal shares. However, if the shares are equal there would be no possibility of a joint declaration on form 17 for tax purposes, so only a declaration in respect of unequal shares would be correct.

The bit in bold makes a significant difference to the bit you originally posted.

The underlined bit confirmsthat you can have a deed of trust/decleration that the propertry can be held with differring shares of beneficial interest. This is different than having an unequal share of title ownership.

The 2nd quote is again of no use without the context of what it is referring to, and generally it refers to those who are joint property owners but who are not husband and wife. Therefore not applicable in this case.

Form17 is only applicable to married couples, so therefore the Form17 decleration isn't applicable for tennants in common.

Anyone can post half quotes to try and support their argument. The facts however generally make their argument void.

hatnezmaturestudent

Thanks guys very helpful.

MoneyGeoff

Perhaps your wife could become your letting agent and charge you most of your rental income for doing so. Only the remaining profit would need to be split 50:50. She would need to pay income tax on her earnings as the agent but she'd be able to utilise her tax free allowance.

Not sure if this is feasible, just an idea.

booksurr

dori2o wrote: »

Anyone can post half quotes to try and support their argument. The facts however generally make their argument void.

anyone can claim they work for HMRC, doesn't mean they know about specific taxes

whilst we wait for Jimmo, the real HMRC expert on CGT, to give a definitive answer, please explain what, on the Form 17 itself, the following instructions mean: (copied in full!)

When to fill in this form
You can use this form to declare a beneficial interest if you hold property jointly
and
• you actually own the property in unequal shares,
and
• you are entitled to the income arising in proportion to those shares,
and
• you want to be taxed on that basis.

Do not fill in this form about:
• income to which neither of you is beneficially entitled
• partnership income
• income from commercial letting of furnished holiday accommodation
• income from shares in a close company
• income which for tax purposes is treated as income of a third party, even if the income arises from
property held in your joint names
• property held as beneficial joint tenants where you are both jointly entitled to the whole of the property and income
• property that is not held in unequal shares (you cannot choose to have the income taxed on an unequal basis because you think it would be to your advantage)

so:
- what does "own" mean in that context, seems to me there is a clear distinction between legal (own) and beneficial (entitled) ownership???
- what does "held" mean???

dori2o

This isn't actually a CGT issue, although the decleration will have an effect on CGT if it is still in place if/when the property is sold.

The guidance that YOU yourselfposted even stated that there can be a beneficialinterest deed/decleration made.

title ownership and beneficial ownership are not the same thing, and you can have unequal interests in a property for tax purposes and still own 50% of the title deed.

Explained here ITA 2007 s.837

837 Jointly held property: declarations of unequal beneficial interests

(1)The individuals may make a joint declaration under this section if—

(a)one of them is beneficially entitled to the income to the exclusion of the other, or

(b)they are beneficially entitled to the income in unequal shares,

and their beneficial interests in the income correspond to their beneficial interests in the property from which it arises.

(2)The declaration must state the beneficial interests of the individuals in—

(a)the income to which the declaration relates, and

(b)the property from which that income arises.

(3)The declaration has effect only if notice of it is given to an officer of Revenue and Customs—

(a)in such form and manner as the Commissioners for Her Majesty's Revenue and Customs may prescribe, and

(b)within the period of 60 days beginning with the date of the declaration.

(4)The declaration has effect in relation to income arising on or after the date of the declaration.

(5)The declaration continues to have effect until such time (if any) as there is a change in the beneficial interests of the individuals in either—

(a)the income to which the declaration relates, or

(b)the property from which that income arises.

System

Surely not meeting the conditions within Form 17 means that the person is therefore not entitled to beneficial interest in unequal portions so s837 dails at para 1.

The form 17 and the income tax need to be taken together for an overall picture of entitlement etc