Changing type of Tenancy for Tax Efficiency

NAKK

Hi everyone,

Thought I would ask for some advice.

We recently purchased a property and moved into it. We now want to rent out our former home to tenants. I want to understand the most efficient way of taxation for the former property. For context, we have a residential mortgage on the former home. The property is under Joint Tenancy names so rent will be split 50/50 between us. I have been doing research and it seems the best way forward would be to change the Joint Tenancy to Tenancy in Common and allocate 90/10 (Partner/Me) to make most of my partner's tax allowance. For reference, my partner is Director of 2 companies but does not take out any salary as I am on a high income so we only rely on my income to run the house.

I would appreciate appropriate advice for my situation to make the most tax-efficient decision.

anselld

Assuming partner means married ...

It is a three step process.

   (1)  Sever joint tenancy to move to tenants in common.

   (2)  Create Deed of Trust to specify split of ownership 99:1 etc

   (3)  Submit Form 17 to HMRC to specify income split in line with ownership.

You will probably need solicitors for (1) and (2).  All three steps must be done in advance of the relevant income being earned.  It cannot be achieved retrospectively.

If not married it is a lot easier, you can split the income however you like and specify that retrospectively.

Of course there is a lot of other important stuff to get right other than tax.

 

ciderboy2009

Presumably you've obtained consent to let from your mortgage provider?

You may also have to gain their agreement to your proposed changes

.

JGB1955

Just out of interest - would any future CGT liability also be split 90:10?

anselld

JGB1955 said:

Just out of interest - would any future CGT liability also be split 90:10?

It would, but owneship shares can be modified prior to sale if necessary with another Deed of Trust.