Unequal division of income from rental properties / Statement of Trust - advice needed

louthompson

Hi, I will try and keep this as short as possible.

Me and my husband own two rental properties, jointly, and personally (ie not through a limited company).

He earns more and is in the higher tax bracket. I now earn little and am in the lower tax bracket.

With the tax changes being implemented on the mortgage relief for landlords we are now finding much higher (almost crippling) tax bills and much less profit.

It would be beneficial for me to declare the bulk of the rental income if possible.

We have had independent advice to get Statements of Trust so that the beneficial ownership is in unequal amounts.

Last year our accountant advised us that this would be fine, and I could then declare more of the profits on my tax return (eg a 90/10 split rather than 50/50).

We have come to the point now where we want to put these statements of trust in place, but our accountant is now being a bit cagey and keeps saying "the position has changed" and I should seek legal advice because its now apparently become a grey area.

The solicitor I have contacted about the statements of trust, and to ask for advice, has told me that she can advise me from a legal perspective, but my accountant should know about the tax implications of me declaring more of the profits than my husband.

The accountant still won't give me a straight answer as to whether the Statement of Trust means that I can officially and legally declare 90% of the profits to myself. He just keeps saying "the position has now changed" and is now different to the advice that he gave me previously, but won't seem to expand any further on that when I ask him. He just keeps saying "seek legal advice".

The solicitor is insistent that the accountant should be able to tell me whether or not the Statement of Trust would be sufficient evidence to show HMRC, should they come a-knocking and ask why we're now declaring the profits unequally, when they have previously been 50/50.

I'm stuck in the middle with no knowledge of law or tax.

Does anyone know why my accountant is suddenly so reluctant to advise? What does he mean that "the position has changed"? Does he know something that the solicitor doesn't, and is she the one giving me out of date advice?

I am COMPLETELY confused.

If anyone can give me a straight answer or any kind of useful advice, I would be eternally grateful...

Thanks in advance.

00ec25

simple:

1. The property must be owned as Tenants in Common. If you own it as Joint Tenants that will be a total stopper until you change it over - that is a legal question for the solicitor

2. The declaration/("statement") of trust ("DoT") must be documented and should ideally match the TIC ownership shares (it does not have to, but simpler if it does). That is a legal issue for a solicitor

3. having done a DoT you MUST submit a Form 17 to HMRC stating the respective shares. Your tax returns then must match those shares or you will be in deep do do. You can do the form yourself.
https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

4. You can only start to split the rental income and expenditure from the effective date of the Form 17. Note carefully the 60 day time limit for submitting it.

5. Change accountant. There is nothing different about a married couple who are co-owners of a property and how the split is applied

6. How mortgage interest is done is different, but you seem on top of that

See here for general info

https://www.deedoftrust.co.uk/hmrc-guidance/

louthompson

Thank you so much. You've made more sense to me in 5 mins than the solicitor and accountant have over the last two days!

Can I run a couple of things by you please? When I initially asked the solicitor about the statement of trust this was her reply (below) can you tell me if that sounds correct?

"You can indeed enter into a trust deed to show that you own the properties in unequal shares. If they are held between you currently as joint tenants we will need to sever the joint tenancies on each property so you own the property jointly but as tenants in common in unequal shares. We can then do a declaration of trust to show the division. Often this is shown as say 90% to you and 10% to your husband but you could choose something different. Legally there is no reason why you cannot do this but from a tax point of view you should rely on the advice of your accountant as to whether this would allow you to declare the income in mirroring shares for the purposes of income tax calculations. We cannot provide tax advice I am afraid."

Then I went back to my accountant and asked this:

"would you please just be able to give me an answer to two questions, because we really want to get the ball rolling on this as soon as possible. If we get Trust Deeds put in place for the two rental houses, and they show the division of ownership as 99% to me and 1% to [husband], does that literally mean that I can declare 99% of the income to myself when it comes to doing my tax return?

So if the income was £5k for example, I could declare £4,950 of it, and [husband] would only be liable for £50?

If that is correct, how do I declare it like that? When it comes to my SA Tax do I just instruct you to declare 99% on my behalf, instead of 50%."

And it was his reply to that which was all cagey, didn't really give me an answer, and started going on about grey areas and him not being able to advise me.

I would be grateful for your input on the above please. So with the DoT and Form 17 that you mention, we should be good to go?

Thanks so much.

00ec25

louthompson wrote: »

Thank you so much. You've made more sense to me in 5 mins than the solicitor and accountant have over the last two days!

Can I run a couple of things by you please? When I initially asked the solicitor about the statement of trust this was her reply (below) can you tell me if that sounds correct?

"You can indeed enter into a trust deed to show that you own the properties in unequal shares. If they are held between you currently as joint tenants we will need to sever the joint tenancies on each property so you own the property jointly but as tenants in common in unequal shares. We can then do a declaration of trust to show the division. Perfect answer to this point Often this is shown as say 90% to you and 10% to your husband but you could choose something different. Legally there is no reason why you cannot do this but from a tax point of view you should rely on the advice of your accountant well OK the solicitor is not going to advise you on the precise % to use as he does not have your tax return to hand to know how close you are to the higher rate tax band and so what % could be used to keep you out of it as to whether this would allow you to declare the income in mirroring shares for the purposes of income tax calculations shame, for that is exactly what the Form 17 emphasises, your tax return must be based on the % in the DoT. We cannot provide tax advice I am afraid." indeed, one won't not ask your hairdresser for advice on nail varnish, one would use a nail bar, even if both are involved in the vanity game

Then I went back to my accountant and asked this:

"would you please just be able to give me an answer to two questions, because we really want to get the ball rolling on this as soon as possible. If we get Trust Deeds put in place for the two rental houses, and they show the division of ownership as 99% to me and 1% to [husband], does that literally mean that I can declare 99% of the income to myself when it comes to doing my tax return? yes

So if the income was £5k for example, I could declare £4,950 of it, and [husband] would only be liable for £50? yes

If that is correct, how do I declare it like that? When it comes to my SA Tax do I just instruct you to declare 99% on my behalf, instead of 50%." yes, although you are also technically supposed to state in the free text box that this is your share of the property at: address

And it was his reply to that which was all cagey, didn't really give me an answer, and started going on about grey areas and him not being able to advise me.

I would be grateful for your input on the above please. So with the DoT and Form 17 that you mention, we should be good to go?

Thanks so much.

having returned home I now have the link i wanted earlier

please read all the following pages, they cover the whole issue in reasonable detail without being unnecessarily complex

https://www.deedoftrust.co.uk/hmrc-guidance/

louthompson

Again, thank you SO much! I will have a good and proper read through that link now. I cannot believe that neither of them have mentioned the Form 17!