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Using Deed of Trust to save tax

magn8p
magn8p Posts: 263 Forumite
Sixth Anniversary 100 Posts Combo Breaker
edited 19 February 2019 pm28 7:09PM in House buying, renting & selling
I have a rental property and I am currently the only registered owner of the property.

As you know the government is reducing the mortgage interest relief and soon it would be 0%. I am a 40% tax payer, so it's going to get really expensive.

A BTL mortgage broker recently suggested that I add my wife's (who is in 20% band ) to the "Deed of Trust" as higher rental beneficiary (something like 90%) - despite not being a registered owner. I cross checked with other sources like http://www.philmartin.co.uk/deed-of-trust.html and this seems to be a legal way to reduce the tax burden on the rental property.

Now, my question for you is - can I add anyone other than my wife instead - perhaps my father or daughter who currently don't have any income - and effectively making the rental income fall with in their personal allowance, thus considerably reducing the tax on the income form the rental property.

Thanks for your time.

Comments

  • Who would receive the income from the property?
  • magn8p
    magn8p Posts: 263 Forumite
    Sixth Anniversary 100 Posts Combo Breaker
    It would of course go as per the deed.

    If I add my wife - she would receive the percentage mentioned in the deed. So is the case if my father or daughter can be added to the deed.

    I currently support my father for his monthly expenses and if this can help me save tax, I would help him with the rental income on the property and save tax.

    Who would receive the income from the property?
  • Go and speak to an accountant then would be my suggestion.

    There may be other considerations when doing this if its not to your spouse such as capital gains tax etc.
  • Does your daughter already own property? If not does she want to lose future first time buyer status?
    An answer isn't spam just because you don't like it......
  • magn8p
    magn8p Posts: 263 Forumite
    Sixth Anniversary 100 Posts Combo Breaker
    edited 19 February 2019 pm28 8:02PM
    That's definitely worth considering. No, she doesn't.

    With her name of deed of trust and not Land Registry's title document - I presumed she would still qualify as a FTB in the future - but then I could be wrong.
    Does your daughter already own property? If not does she want to lose future first time buyer status?
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    1,000 Posts Combo Breaker
    edited 19 February 2019 pm28 8:12PM
    as that link warns, taxation of property is based on beneficial ownership

    BUT BE CAREFUL - you are sole (legal) owner - making your wife a beneficial owner purely for income tax purposes is covered by "settlements legalisation" which deals with artificial income shifting from a higher to a lower rate taxpayer where the reality is that higher rate taxpayer still has "access" to the money since it is his wife who gets it.

    I don't care what that website says about you can do it without, it is much safer to also make her a legal co-owner. That way she inherently has an entitlement to the whole property

    To split the income with your (legally married, not "partner"!) wife you need to submit a Form 17 to HMRC along with the DoT. In respect of anyone else other than your (legally married) wife, you do not need a Form 17, you "simply" need a DoT

    DoT establishes an entitlement to a share of the property for a non spouse outside of settlements legislation, note that very carefully. You cannot split the income without also splitting the entitlement to the capital share of the property when it is sold.

    For a spouse, setting them up as a co-owner under a DoT is exempt from Capital Gains Tax
    For your father and anyone other than your spouse, it is not. It would be classed as a (part) disposal of CGT purposes and therefore require you to pay CGT on the part you are disposing of, since CGT is based on beneficial ownership.

    as advised, pay for professional advice
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    1,000 Posts Combo Breaker
    magn8p wrote: »
    That's definitely worth considering. No, she doesn't.

    With her name of deed of trust and not Land Registry's title document - I presumed she would still qualify as a FTB in the future - but then I could be wrong.
    you would be wholly wrong - she would have an "interest" in property, and that is the test, not legal ownership
  • moneysaving expert dot com or tax dodging expert dot com :mad::mad::mad:
  • Comms69
    Comms69 Posts: 14,229 Forumite
    10,000 Posts Third Anniversary Name Dropper
    magn8p wrote: »
    I have a rental property and I am currently the only registered owner of the property.

    As you know the government is reducing the mortgage interest relief and soon it would be 0%. I am a 40% tax payer, so it's going to get really expensive.

    A BTL mortgage broker recently suggested that I add my wife's (who is in 20% band ) to the "Deed of Trust" as higher rental beneficiary (something like 90%) - despite not being a registered owner. I cross checked with other sources like http://www.philmartin.co.uk/deed-of-trust.html and this seems to be a legal way to reduce the tax burden on the rental property.

    Now, my question for you is - can I add anyone other than my wife instead - perhaps my father or daughter who currently don't have any income - and effectively making the rental income fall with in their personal allowance, thus considerably reducing the tax on the income form the rental property.

    Thanks for your time.


    I'm slightly confused why a mortgage broker would tell you this, as far as I'm aware you cannot do this.


    Your lender would have to agree, which would mean mortgaging.


    Happy to be corrected
  • Comms69
    Comms69 Posts: 14,229 Forumite
    10,000 Posts Third Anniversary Name Dropper
    moneysaving expert dot com or tax dodging expert dot com :mad::mad::mad:
    Tax avoidance is perfectly legal and the vast majority of the working population do this (e.g. pension)
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