Rental income tax split with spouse

camelcx

I'm the sole owner of our rental property (without mortgage) and I'm a higher rate tax payer than my wife. We want to make her the beneficiary owner of the property, so we could pay less tax on the rental income.

I've searched in here for a bit and I think the general suggestion is to change the ownership to Tenant in Common, Declaration of Trust to change ownership to 1:99, and then sign form 17.

However, I have also seen suggestions elsewhere that you can declare a property as a bare trust, in which way you only need to do a Trust Declaration to make the wife the benificiary owner. https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9520

I wonder if the latter is possibe in this case? If so, do you need to register such a declaration? Or do you only need to somehow provide such a document when doing self-assessment tax return?

sukh38

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dimbo61

While I know nothing about Bare trusts 
We do have a Rental property which is owned as Tenants in Common with 90% owned by my wife and 10% in my name.
Rental income is divided in the same way and tax paid via our accountant.
Perhaps  you could employ an accountant to give you Tax advice on this.

camelcx

Thanks dimbo61. I was searching a DIY path for money saving since my solicitor quoted me over £900 for changing ownership to TIC. While the TIC path is relatively straight forward to me (in terms of what to do, which form to submit etc.), the bare trust way just sounds so much easier. If nobody turns up explaining it here in the next couple of days, I'll ask a financial adviser/ accountant for help then.

[Deleted User]

I am not an accountant so don't quote me on this....

Is there a benefit to you both being beneficial owners so that when the time comes to sell you will each get your CGT allowance instead of just your wife?

sukh38

camelcx said:

I'm the sole owner of our rental property (without mortgage) and I'm a higher rate tax payer than my wife. We want to make her the beneficiary owner of the property, so we could pay less tax on the rental income.

I've searched in here for a bit and I think the general suggestion is to change the ownership to Tenant in Common, Declaration of Trust to change ownership to 1:99, and then sign form 17.

However, I have also seen suggestions elsewhere that you can declare a property as a bare trust, in which way you only need to do a Trust Declaration to make the wife the benificiary owner. https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9520

I wonder if the latter is possibe in this case? If so, do you need to register such a declaration? Or do you only need to somehow provide such a document when doing self-assessment tax return?

Where did you get with this?

canaldumidi

sukh38 said:

camelcx said:

I'm the sole owner of our rental property (without mortgage) and I'm a higher rate tax payer than my wife. We want to make her the beneficiary owner of the property, so we could pay less tax on the rental income.

I've searched in here for a bit and I think the general suggestion is to change the ownership to Tenant in Common, Declaration of Trust to change ownership to 1:99, and then sign form 17.

However, I have also seen suggestions elsewhere that you can declare a property as a bare trust, in which way you only need to do a Trust Declaration to make the wife the benificiary owner. https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9520

I wonder if the latter is possibe in this case? If so, do you need to register such a declaration? Or do you only need to somehow provide such a document when doing self-assessment tax return?

Where did you get with this?

OP has not been back since 17 July.......

camelcx

sukh38 said:

camelcx said:

I'm the sole owner of our rental property (without mortgage) and I'm a higher rate tax payer than my wife. We want to make her the beneficiary owner of the property, so we could pay less tax on the rental income.

I've searched in here for a bit and I think the general suggestion is to change the ownership to Tenant in Common, Declaration of Trust to change ownership to 1:99, and then sign form 17.

However, I have also seen suggestions elsewhere that you can declare a property as a bare trust, in which way you only need to do a Trust Declaration to make the wife the benificiary owner. https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9520

I wonder if the latter is possibe in this case? If so, do you need to register such a declaration? Or do you only need to somehow provide such a document when doing self-assessment tax return?

Where did you get with this?

Almost two years... I feel like I should still post an update in case somebody is interested (and if sukh38 still is). First, some disclaimer, I have done my research, but I am not a professional accountant or lawyer. So do not take my word for it.

I have consulted some accountants and my solicitor dealing with house purchasing. My feeling is that no one knows how this alternative route would work. The problem is with three aspects: government rules, law, and the lender.

Government is clearly allowing the "bare trust" declaration for such purposes. However, the "bare trust" as per the instruction of government is not legal tender. As per my solicitor, a legal tender trust must be declared, witnessed and with a restriction registered on the title of the property.  However, if you do this the "legal" way, you will find it impossible to later acquire any mortgage on the property as lenders do not like restriction on the title (risk of losing the property as the guarantee of the loan). This is also possibly the reason why the government’s guideline looks not legal tender.

So if you want to transfer rental income to your spouse as a sole owner. You have the choice of:
1. Change ownership to Tenant in Common (which is the least problematic way) but you will need to transfer the title. I have gone with the path.
2. Use the "bare trust" declaration as above knowing that there is a loophole that the government could use against you. That is along the lines as the "bare trust" declaration is not legal tender, hence the beneficiary owner of the property is not transferred to spouse, hence income and tax should not be transferred. The chance of the government using this against you is a different story (they clearly have a guidance to allow this kind of "trust" anyway).

You may be able to use an accountant service who suggests using the "bare trust" route (certainly a few accountants I have contacted did say this route is possible). So, in the worst case scenario when this route becomes problematic, the accountant could claim liability insurance to compensate your loss.

Again, there is no guarantee of whether what I said was accurate and correct.