Adding partner to deeds when switching to Buy to Let to reduce income tax

jimbob3

me and my wife are about to buy a new home and switch our existing one onto a BTL mortgage to rent out, the existing property is in my name only for the deeds and the mortgage although we have both lived in it since I bought it 6 years ago.

I would like the BTL rental income to go in my wifes name as I pay higher rate tax and she does not, however my understanding is that as far as HMRC are concerned the rental income goes to the person who owns the property so 100% to me if in my name, 50/50 if joint ownership or some other proportion if tenants in common irrespective of the name on the tenancy agreement or the bank account which receives the money, is this correct?

If I do add my wife to the deeds when should I do it? Assuming that the names on the mortgage need to match the deeds if I added her on immediately I would need to clear it with my existing mortgage provider who I presume would want to do lots of credit checks etc as with a normal mortgage application is this correct? Alternatively I could do it at the same time as applying for the new mortgage as these checks would be done as part of this process anyway so this seems to make more sense but then I was reading that she may have to pay stamp duty on the outstanding mortgage balance is this correct?

The existing mortage balance is around 130k and the BTL will be around 150k so her 50% share would be under the 125k threshold for stamp duty but if the change is done as the property is switched to a BTL mortgage would it then be treated as a BTL transaction so that she would have to pay 3% of 150k/2? We are already being charged the extra 3% BTL stamp duty on the new property so surely we couldn't be charged on the old property too? If that was true then should I add her before switching to BTL to avoid this?

As a final question I know that when we eventually sell the BTL property we will get CGT relief for the proportion of time we have lived there, however I read somewhere that if my wife is added onto the deeds at the time it switched onto BTL then she will get no relief on her half of the property because she will not have lived there after that time, is this true?

To me it makes sense to add her onto the deeds when switching to BTL to reduce the tax on the rental income but these other factors may make that uneconomical, has anyone else done this?

I know there a lot of questions in there but hopefully someone can answer some of them, thanks!

Kynthia

You might want to get more advice about the CGT implications. As you are married you must have the same primary residence for CGT purposes so the property must be her PPR at the moment. However I don't know whether you have to be an owner at the time of residence to claim PRR. With this and the stamp duty issue it might be worth speaking to an account that specialises in this field, and consider changing the beneficial ownership as an alternative also.

Pixie5740

Since there is a mortgage you cannot just add your wife to the deeds. It's most likely that she would need to be added to the mortgage or a new mortgage taken out in both your names. As for whether it's worth having your wife added to the deeds for income tax purposes versus losing some reliefs for CGT I do not know.

The additional SDLT is not a "BTL charge" it's a charge for people buying additional residential properties. Therefore, when you buy your new home you will pay the additional SDLT on that purchase as you will not be replacing your main residence you will be letting out your current home and buying another. In other words at the start of the transaction you will have 1 property and at the end you will have 2 properties.

Edit: I'm not sure how much you know about being a landlord so you might find G_M's Guide for Landlords in England & Wales useful.

booksurr

jimbob3 wrote: »

me and my wife are about to buy a new home and switch our existing one onto a BTL mortgage to rent out, the existing property is in my name only for the deeds and the mortgage although we have both lived in it since I bought it 6 years ago.

I would like the BTL rental income to go in my wifes name as I pay higher rate tax and she does not, however my understanding is that as far as HMRC are concerned the rental income goes to the person who owns the property so 100% to me if in my name, 50/50 if joint ownership or some other proportion if tenants in common irrespective of the name on the tenancy agreement or the bank account which receives the money, is this correct?

correct. Tax liability follows entitlement to income. To have an entitlement you must have an "interest" in the property. Your wife currently has none. Section 271 Income Tax (Trading and Other Income) Act 2005 https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1020

once she acquires an interest you are correct that as a married couple you will be assessed 50/50, unless you submit a Form 17 and declaration of trust to register with HMRC an unequal share of the profit

alternatively, you could remain the sole legal owner but set up a trust with her as the beneficial owner so you hold it merely as a bare trustee and she gets the income entitlement - but not something to do without legal advice !

jimbob3 wrote: »

If I do add my wife to the deeds when should I do it? Assuming that the names on the mortgage need to match the deeds if I added her on immediately I would need to clear it with my existing mortgage provider who I presume would want to do lots of credit checks etc as with a normal mortgage application is this correct? Alternatively I could do it at the same time as applying for the new mortgage as these checks would be done as part of this process anyway so this seems to make more sense but then I was reading that she may have to pay stamp duty on the outstanding mortgage balance is this correct?

if you add her to an existing mortgage then yes, she is taking on liability for your debt and so that is "consideration" for SDLT purposes so she would have to pay if her liability (ie: 50% of the o/s mortgage) is above the (additional rate!) SDLT threshold of £40,000

if you remortgage (and / or go from 1 to 2 mortgagees at that same time) then that will be deemed by HMRC to be the same and she will be assessed for SDLT on half the new mortgage

if you get a totally new joint mortgage on a different property then that of course is a different matter

jimbob3 wrote: »

The existing mortage balance is around 130k and the BTL will be around 150k so her 50% share would be under the 125k threshold for stamp duty but if the change is done as the property is switched to a BTL mortgage would it then be treated as a BTL transaction so that she would have to pay 3% of 150k/2? We are already being charged the extra 3% BTL stamp duty on the new property so surely we couldn't be charged on the old property too? If that was true then should I add her before switching to BTL to avoid this?

she has no interest in an existing property. She will have an interest in the new marital home but adding her tot he (now) BTL means she (personally) will have gone from an interest in 1 property to an interest in 2 properties so yes for sure she would be liable for the higher rate since she has bought an additional property

jimbob3 wrote: »

As a final question I know that when we eventually sell the BTL property we will get CGT relief for the proportion of time we have lived there, however I read somewhere that if my wife is added onto the deeds at the time it switched onto BTL then she will get no relief on her half of the property because she will not have lived there after that time, is this true?

in order to claim private residence relief you must have occupied the property whilst you had an interest in it

if she acquires her interest after she ceases to occupy then she has no claim to the CGT relief because she cannot "inherit" yours even though you lived there as a married couple