Transfer ownership of home to wife for tax purposes.

bbsirdar

We own one home, the family home supported by a standard joint mortgage. Over the last few years, by necessity, due to my Military service, we haven't been able to live in it and have let it out on the open market. Until recently, profits have been low and the tax exposure has been minimal such that I never really looked into things. Now however, with changes to the rental tax regime and my wage increases, just into the higher tax rate, the hit is becoming painful. At the same time my wife doesn't work and has zero taxable income. Are there any options for me to transfer ownership of my 1/2 of the property to my wife without overly troubling the mortgage company. We are, by accident, on a legacy base rate tracking mortgage that is very low and they are desperate to get us off this and into a different (dearer) product. One worries that a change like this, even if permissible with the IR, might be just the excuse the mortgage company need to change our terms etc.

Jeremy535897

Is the mortgage company aware that you let the property out? I think you would have to ask the mortgage company whether your proposal would affect the mortgage. I think it would, because you can't have a mortgage on a property you don't own?

Whilst it may reduce the income tax liability on net rent, it could be disadvantageous for capital gains tax. Your wife's rate of CGT on the first part of any gain would be lower than yours, but you would not be able to use your annual exemption against any gain. I don't think it would have an effect on the main residence relief, if you and your wife have always owned the property jointly, but this is complex law and I welcome anyone else's thoughts (section 222(7) TCGA 1992). Normally you would only look at the transferee's period of ownership, as the house would not qualify for main residence relief at the date of the transfer, but if the transferee has always owned half, I think that rule does not apply.

There would also be SDLT to consider, as your half of the mortgage would be treated as consideration. That may not matter during the stamp duty "holiday", depending on values and any other property ownership.

From a practical point of view, I suggest you talk to a solicitor and say you propose to convert the joint tenancy into a tenancy in common (if this is necessary) and then allocate ownership say 10% you 90% your wife using a deed. Your solicitor will be able to advise whether this would need to be explained to the mortgage company, and whether they could then impose new rates. As you would still be on the deeds and on the mortgage, that may be more acceptable. You would need to complete income tax form 17. See
https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

There is a 60 day time limit.

bbsirdar

Thank you very much for your comprehensive reply. We did tell the mortgage company it was let but went to lengths to explain it was let only due to our unforseen Military posting overseas and not as a deliberate buy to let initiative. They were content with this but insisted on charging us £100 per year as an admin fee. Gradually as Allied & Leicester was bought by Abbey National which was bought by Santander, they've lost sight of this and don't charge me the admin fee anymore. I would wager they've lost sight of the fact we let the property, but i did tell them. Equally you correct on the complexities of the CGT recently introduced for when your sole and primary property is let. Especially as we are overseas now and were previously and there is CGT relief for UK Mil serving abroad and not able to occupy their property. We have both been listed jointly on the mortgage since we bought it and I assume that it is owned jointly in both our names.

Jeremy535897

It sounds as if you are regarded as resident in the UK for tax purposes, despite being posted overseas?

You will own the house jointly if you are both mortgagees. The question is whether you own as joint tenants or tenants in common. If you adopt the 90:10 allocation idea then you would first have to convert any joint tenancy into a tenancy in common. Your solicitor can advise.

As you say, there are exemptions for periods where you are required to live elsewhere for your employment. The rules are complicated.

jimmo

"Crown employees are always taxed in the UK in full on their Crown employment income whether the duties of the employment are carried out in the UK or overseas. As a result residence is irrelevant in determining their liability on their Crown employment income."

 

From <https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm10520>

 

As you will see from that link there is quite a bit which HMRC have not published.

Health warning. I retired from HMRC some 14 years ago but, from memory, as regards any sources of income apart from your Crown Employment the normal residence / non residence rules apply. On that basis you are regarded as a non resident landlord (NRL). In any event your wife is a non resident landlord so, even if I am wrong about you, you will still face the NRL issue.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4810

 

Have you already dealt with this issue?

 

With regard to potential Capital Gains I would suggest that the first thing to look at is whether you have been living in Job Related Accommodation. For military personnel that can be pretty straightforward. If you live in barracks or quarters that is sufficient.

 https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim11346

 https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim11351

 

Periods where you have lived in job related accommodation are periods where the property you own are deemed to be your residence,

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64477

 

If your periods of actual occupation and deemed occupation do not cover the whole period of ownership it will be necessary to look further into periods of absence.