Adding wife to the mortgage for income tax efficiency

bibek

Hi,

I did a quick search within the forum but could not find a similar question. I bought a property in 2015 to live in and have recently moved out due to moving jobs. Property is in a ideal location therefore reluctant to sell it also has a good rental value so have rented it out to a family.

I have already obtained CTL from Nationwide and they're ok with me renting it out. Now, looking at my total income for this tax year, its going to push me to high rate tax bracket. My wife is currently unemployed and even if she were to work, she would not be anywhere near the high rate tax bracket therefore my intention is to show the rental income (most if not all) as hers i.e. using her tax allowance and pay the 20% instead of having to pay 40% on almost half of my yearly rental income.

After scouring the internet for hours, I saw something about being able to add your wife on the mortgage and setting up a declaration of trust to split the ownership something like 90/10 so most of the rental income could be submitted to HMRC using her allowance. Please correct me if I am wrong or if there is another/better method.

I am sure I am not the first one in this situation. Any help/advice would be much appreciated.

Thanks.

00ec25

bibek wrote: »

I am sure I am not the first one in this situation.

indeed you are not...

1. must own as tenants in common (mortgage not the driving factor)
2. declaration of trust
3. form 17

https://forums.moneysavingexpert.com/discussion/5821647/paying-tax-on-rent&highlight=form+17

https://forums.moneysavingexpert.com/discussion/5810518/flat-for-btl-investment-shall-we-choose-joint-ten&highlight=form+17

https://forums.moneysavingexpert.com/discussion/5790321/signing-the-deeds-over&highlight=form+17

https://forums.moneysavingexpert.com/discussion/5788647/tenants-in-common-declaration-of-trust&highlight=form+17

https://forums.moneysavingexpert.com/discussion/5779893/rental-income-deduction-relief&highlight=form+17

https://forums.moneysavingexpert.com/discussion/5774159/btl-want-to-avoid-higher-rate-tax&highlight=form+17

unforeseen

However mortgage lenders get twitchy when you want to add somebody to the deeds who is not party to the mortgage. It may not be a driving factor but it will be a critical factor in whether it can be done.

bibek

Thank you both for your replies.

As unforeseen mentioned, reason I was thinking of adding the wife on the mortgage is for that specific reason. I would assume the bank needs to be notified if the title deed is going to change even though its the land registry that deals with it. Now, would it be upto the bank to decide whether the Mrs can be on the title deeds ? Do I need to speak with them first before moving forward ?

Secondly, do I just pick up a conveyancing solicitor and speak to them about what I want to do ? Can a declaration of trust also be drawn by the conveyancing solicitor or will I have to get someone else involved ? Form 17 looks straight forward to just fill by myself and post to HMRC.

00ec25

bibek wrote: »

Secondly, do I just pick up a conveyancing solicitor and speak to them about what I want to do ? Can a declaration of trust also be drawn by the conveyancing solicitor or will I have to get someone else involved ? Form 17 looks straight forward to just fill by myself and post to HMRC.

previous thread already listed above, read:

https://forums.moneysavingexpert.com/discussion/5790321/signing-the-deeds-over&highlight=form+17

bibek

Apologies, somehow missed out the last reply from you in that thread explaining what to do. Will give it a thorough read tonight and set up an action plan to get things rolling.

Thanks for your help!

bibek

Ok so I contacted a solicitor to get a quote to draw up a declaration of trust and briefly explained him what my plan was. Below is his response:

The lender would need to agree to add your wife on to the legal title and the mortgage. The mortgage and legal title will need to be the same.
It is possible to do a declaration of trust with yourself declaring you hold the property in your sole name on trust for yourself and your wife. However, it may put you in breach of your mortgage to do so. I would charge £325 plus VAT plus £3 to obtain Land registry entries to do this.

He seems certain she needs to be on the mortgage to be added to the deed so I looked into transfer of ownership with Nationwide (my mortgage lender) and on that page it states the following:

Am I eligible to apply for a change of borrower?
You can make an application to add or remove a borrower on most Nationwide mortgages. We'll need to make sure you can afford the mortgage and carry out a credit check.
We can't change the borrowers on your mortgage if:
Your property is let
Your mortgage will continue to have three or more borrowers
The person being removed from the mortgage is still living in the property.

Now, point concerning me is that the property is currently being let. I do have a consent to let in place from Nationwide a couple of months ago before starting to let my property.

Does that mean I am out of options without changing my lender to be able to add the wife to the title?

MoneyGeoff

Could you employ your wife as your letting agent/rent collector and pay her the entire rental income for doing so? That way you'd make no profit and so pay no tax. Accountancy, Letting Agent fees and Rent Collection are tax deductible I think.

She would need to pay tax on the income if it pushed her into a tax band.

p00hsticks

MoneyGeoff wrote: »

Could you employ your wife as your letting agent/rent collector and pay her the entire rental income for doing so? That way you'd make no profit and so pay no tax.

I'm pretty sure HMRC wouldn't allow this between connected parties - there's no way that you could argue that the work involved in looking after a single property justified a salary comparable to the entire rental income.


Not to mention the complications invovlved in either employing someone (PAYE, pensions) or your wife setting up in business as a 'self-employed letting agent

bibek

MoneyGeoff wrote: »

Could you employ your wife as your letting agent/rent collector and pay her the entire rental income for doing so? That way you'd make no profit and so pay no tax. Accountancy, Letting Agent fees and Rent Collection are tax deductible I think.

She would need to pay tax on the income if it pushed her into a tax band.

:rotfl: That was the first thing that crossed my mind but after a quick google, turns out it has been thought of already and not possible!

jimmo

bibek wrote: »

Does that mean I am out of options without changing my lender to be able to add the wife to the title?

No expert in mortgages but I gather that a residential mortgage with consent to let can be cheaper that a BTL mortgage. If you change the ownership of the property you will need a BTL mortgage, perhaps with Nationwide, perhaps with another lender but it will be a new mortgage with associated costs.
However as you have only been letting for a few months Capital Gains Tax could be a significant problem, At the present time you seem to have entitlement to Private Residence Relief in respect of the period you lived in the property but your wife cannot qualify for that. The potential effect depends on a number of factors including how long you have owned the property, how long you lived there, how long you intend to let the property, how much the property has increased in value since you bought it and how much it is likely to gain from now on. Ultimately the test is whether your savings in Income Tax will outweigh the additional Capital Gains Tax. Take a look at the help sheet on PRR for a starter.
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2018