Buy to let investment and tax

AA-Audrey

My partner (we’re married) is in the unexpectedly fortunate situation of acquiring some money to buy one or two investment properties. The idea is to keep the properties for about 20 years, then sell then and use the money to support our children (buying their own house/education etc). It’s a long story but they have to buy investment properties with the money (and not other investments)

My partner is a higher rate tax payer (just) and I’m basic rate.

Rental income: I understand we can use a declaration of trust to say that I receive all the rental income (and therefore pay basic rather than higher rate). At what stage do we need to do this? When we buy the property or rent it out?

Ownership: are there any financial benefits to putting the property into both our names (rather than just my partners)? I am wondering if it will help when we come to sell the property (ie CGT)

Trust: we do have the option of putting the properties in a discretionary trust for our children. We probably won’t do this (as we might need to sell) but can we receive the rental income if the house is in trust?

thanks for your help

Jeremy535897

If your partner owns cash outright, and intends to buy investment property, either they buy it themselves, or they buy it in joint names (effectively making a gift to you). I don't understand the reference to "they have to buy investment properties with the money". It could be important, as such a requirement may preclude you from being a joint owner.

Assuming this is not an issue, and property is bought in joint names, you and your spouse have a number of choices:

• buy as joint tenants. You will each be treated as owning half the property, and be assessed on half the income and gains
• buy as tenants in common. You can then decide how to share the ownership, so for example your spose could own 90% of the property and you could own 10%. Unless you filed a Form 17, you would each be assessed on 50% of the rent, but gains would be assessed 90% 10%.

You cannot own the property 50:50 but you be taxed on all the rent.

There will be higher rate stamp duty to pay on any purchases.

A discretionary trust for your children achieves nothing for tax purposes unless you and your spouse are permanently excluded from benefit. If they are minors, you would still be taxed on the income of the trust, even if you were permanently excluded from benefit.