Financial Advice

thecrater

Hello,
I'm on track to paying off my mortgage on my flat by the end of the year. :j

My family has recently grown and our 1-bed flat is starting to look too small as we're running out of space.

My aim is to sell my flat and use the money as deposit towards a house. This is looking increasingly difficult in the current climate but I haven't given up hope yet.

My plan B would be to rent out my current flat and put the money towards renting a 3-bed house. Not ideal but nonetheless an option should all fail.

My salary is currently £50k/pa and my better half does not work. The flat is under my name due to me being the mortgage payer.

My concern is that if we were to rent out the flat, the income from that would count towards my income and as such would be charged at the higher tax bracket. However, if the flat were in my wife's name then she could use that as her only source of income and would pay virtually no income tax.

Is it possible to do the above and what would I need to do?

Thanks in advance

bob_bank_spanker

You would need to transfer ownership to your wife. Or become tenants in common and have a 99:1 split. You would need to pay off the mortgage first, and I would certainly use a solicitor to draw up the documents.

thecrater

Thank you Bob.

Would I have to pay taxes to transfer ownership of the flat to my wife? What is the tentants in common and what benefits would it have?

p.s. thank you for the prompt reply :-)

saajan_12

Living in the home you own is generally better than letting a property and renting elsewhere yourself, unless you particularly need the flexibility (e.g. likely to move frequently / in different areas). Primarily this is because it is more tax efficient but also letting creates the hassle and responsibility of being a landlord as well as the lack of security in your rented accomodation.

* Can you afford voids between tenants / when tenants don't pay rent? Meanwhile you would always need somewhere to live, so always paying rent, potentially with an overlap if you move.

* More hassle with repairs, having to deal with your landlords / tenants as well as tradespeople rather than just tradespeople directly. What if your LL refuses to make repairs?

* Legal responsibility to protect deposits, provide gas safety/EPC certs, serve valid notice etc.. all not rocket science but added work and added risk if there's a mistake.

* Capital Gains Tax on let property for the period you don't live there if/when you sell.

thecrater

@saajan_12

Thank you.

I'm aware of these potential issues which is why this is my last resort. Would transferring ownership to my wife incur another kind of taxation?

Pixie5740

How is the property currently owned? Is the mortgage just in your name or both you and your wife's names?

thecrater

Pixie5740 wrote: »

How is the property currently owned? Is the mortgage just in your name or both you and your wife's names?

In my name only at the moment. I think I can pay a fee and add my wife's name. I couldn't initially when I got the mortgage as the bank would not allow my wife to be named since she was not paying the mortgage :-(

I have since sought advice elsewhere on the forum and found out that it was just the stupid bank I was going with at the time so it should be possible to put my wife's name on the mortgage.

saajan_12

thecrater wrote: »

@saajan_12

Thank you.

I'm aware of these potential issues which is why this is my last resort. Would transferring ownership to my wife incur another kind of taxation?

I understand it's a last resort, I mean it might be preferable to wait until you can afford to buy with the flat proceeds as a deposit or reduce your expectations slightly.

No other taxes for a gift from you to wife, only (small) legal costs to fill in the forms.

00ec25

thecrater wrote: »

Thank you Bob.

Would I have to pay taxes to transfer ownership of the flat to my wife? What is the tentants in common and what benefits would it have?

p.s. thank you for the prompt reply :-)

there are only 2 methods by which people co-own property in the UK: as Joint Tenants or as Tenants in Common

read:
https://www.gov.uk/joint-property-ownership/overview

as a married couple transfer ownership to her has NO TAX implications at point of transfer

it is therefore very tax efficient for you to remain a part owner against the CGT on eventual sale. the way to do that is as TIC with you having a nominal retain share of 1%. That does of course mean you would be liable for income tax on 1% but depending on the timescale and values that small discomfort now may be dwarfed by a CGT bill if you don't do it that way.

Note - putting her on the mortgage does not mean you can "give" her the rental income unless she is also an actual owner of the property and is therefore entitled to (a share of) the rent

ReadingTim

Landlording is increasingly onerous and decreasingly profitable. Putting it into your wife's name will delay in impact of the latter, but (at the risk of stating the obvious) she will own the flat. If the relationship goes down the pan, this could be a problem.

saajan_12

ReadingTim wrote: »

she will own the flat. If the relationship goes down the pan, this could be a problem.

As OP and wife are married, I would think it would be treated as part of marital assets. Especially as wife didn't own it prior to the relationship, the legal ownership would make little difference to the treatment in the event of divorce.