FHL/BTL purchase in joint name or wife's name

Danny44

Hi,
Me and my wife are planning to purchase a second property to use as a furnished holiday let (but possibly transition it to be a residential let in future if we found FHL unprofitable or too much work).
We were originally planning to buy the property in my wife's name given she is the lower rate tax payer and I am currently an additional rate taxpayer however I plan to stop work in four or five years time (this purchase is also to provide me with a income stream pre any retirement). In 4-5 years time we'd want the income to count as mine rather than my wife's to utilise what would be my unused personal tax free allowance. How easy is it to transfer ownership of the property- specifically its FHL or BTL income from my wife to me in that scenario (assume no mortgage at that time)? Is it better to buy in my wife's name or joint names?

We also read that if we bought in our joint names and ran a FHL there is ability to apportion the income however we wish but we are not sure how we could apportion all the income to me if we we transitioned to a standard residential BTL in the future?
Appreciate any advice
Many thanks
Dan

sheramber

In the case of joint ownership the split is automatically 50/50

You can change the beneficial  interest  with  a declaration ir deed.

You also need to send a completed form 17 to HMRC

See link

https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

Danny44

Many thanks for the info - so if we purchased the property jointly it sounds like it would make sense to initially place the property's beneficial interest to 100% in my wife's name (as the lower rate tax payer) and fill in form 17 to HMRC. 
Then in future is it correct I can further change the property beneficial interest a second time from her to be 100% to me (would make sense in several years if I have no yearly taxable income to utilise at that point my yearly personal allowance)?
My mortgage broker commented in passing that several mortgage provided would not lend if a deed of trust were in place- Not sure if this is correct or whether this would prevent us doing this option? 
Would buying jointly like this be easier than buying in my wife's name only?

Just so I understand the alternative scenario, if we bought in my wife's name only (and any FHL or BTL income counts as her income)- is there a way to pass or gift the property back to me in future so in future the property income would be classed as mine for tax purposes (without incurring stamp duty etc)?
Many thanks
Dan

SDLT_Geek

Danny44 said:

Many thanks for the info - so if we purchased the property jointly it sounds like it would make sense to initially place the property's beneficial interest to 100% in my wife's name (as the lower rate tax payer) and fill in form 17 to HMRC. 
Then in future is it correct I can further change the property beneficial interest a second time from her to be 100% to me (would make sense in several years if I have no yearly taxable income to utilise at that point my yearly personal allowance)?
My mortgage broker commented in passing that several mortgage provided would not lend if a deed of trust were in place- Not sure if this is correct or whether this would prevent us doing this option? 
Would buying jointly like this be easier than buying in my wife's name only?

Just so I understand the alternative scenario, if we bought in my wife's name only (and any FHL or BTL income counts as her income)- is there a way to pass or gift the property back to me in future so in future the property income would be classed as mine for tax purposes (without incurring stamp duty etc)?
Many thanks
Dan

Am I right in thinking you would be buying in England?  If so, the relevant stamp duty is stamp duty land tax.

A gift between spouses can be free of SDLT, but points to bear in mind are:

(a)  The amount of the mortgage is likely to count as chargeable consideration for the purposes of SDLT.

(b)  Even though this is an "additional property" the extra 3% should not apply for a transfer between spouses who are living together.

(c)  The SDLT threshold, where the extra 3% is not due, is currently £250,000.

(d)  That threshold is due to fall to £125,000 after 31 March 2025.

Danny44

Yes thats correct we are buying in England and the property value is about £350k. We are expecting to incur the second property stamp duty tax for the initial purchase (whether in joint names or in my wife's name) but still struggling to determine whether its more tax efficient to purchase a second property in joint or just my wife's name and how we'd transfer the property income stream at a later point in time.

If we purchased in my wife's name only (to benefit from her low tax rate while I'm still a higher rate tax payer) then it sounds like she would be able to gift it to me in future at a point when we've paid off the FHL/BTL mortgage (without incurring any stamp duty? or does the thresholds you mentioned above mean above 250k some stamp duty on gifting would be due?)
Upon her gifting the property to me in future assume the income would then count as my income for tax purpose (at a point in future when I have no other income).
   
Is my understanding correct? Is there any other way to get the same outcome- we did think about limited company but sounds complex and its not compatible with the mortgages we're looked at so we counted it out.
 
Can you see any advantage to one option over the other(joint vs in my wife's name with her gifting it later)? 
Many thanks -appreciate your knowledge and advice

SDLT_Geek

In my experience the main thing to avoid is buying it initially personally and then deciding later (perhaps because of the unfavourable income tax treatment, with a limited ability to offset interest against rent) to transfer the property to a limited company.  That is likely to result in a further market value charge, with the extra SDLT for additional property.

Danny44

I don't think we'll have a good option to purchase under a ltd company due to the mortgage we need. 
If my wife purchased it in her name but gifted it to me in the future can someone confirm that the gifting of the property wouldn't incur stamp duty (property will be worth >£350k just in case that has any baring)?
Unless there is any other mechanism to transfer the FHL/BTL property income to me in future i'm thinking buying in the wife's name might be the simplest route given she's the lower rate tax payer at present.

If we purchased jointly and did a declaration of trust to change the split of income apparently some mortgage companies won't lend with that in place and not clear if we can adjust that again in future (i assume so?). 
Appreciate any final advice on this.

sheramber

Will your wife qualify for the mortgage on her income alone?
You will need to advise the lender of the change of equity and may have to repay the outstanding loan and negotiate a new one in your name. 

Danny44

Yes she will qualify for the mortgage on her income alone. We plan to pay off the mortgage before she would gift the property to me so we are assuming the mortgage wouldn't be a factor. Hopefully if I've understood below correctly and there wouldn't be stamp duty payable if she gifted it to me and we are living together.
SDLT_Geek -would you be able to clarify -it sounds like no stamp duty would be payable assuming our situation below-

A gift between spouses can be free of SDLT, but points to bear in mind are:

(a)  The amount of the mortgage is likely to count as chargeable consideration for the purposes of SDLT.
We don't plan to have a mortgage at the point where she gifts the property to me. 

(b)  Even though this is an "additional property" the extra 3% should not apply for a transfer between spouses who are living together.
Sounds good- assume this should mean nothing should be payable if she gifts it to me in several years time?
(We will have already paid SDLT when we first purchase the property in her name (property worth~$350k) SDLT  upon her purchase includes the additional home extra SDLT rates +3%

(c)  The SDLT threshold, where the extra 3% is not due, is currently £250,000.
Assume not applicable due to above and we already paid SDLT upon her purchase. 

(d)  That threshold is due to fall to £125,000 after 31 March 2025.
Assume not applicable due to above and we already paid SDLT upon her purchase. 

Really appreciate the info and advice. thanks

SDLT_Geek

Danny44 said:

Yes she will qualify for the mortgage on her income alone. We plan to pay off the mortgage before she would gift the property to me so we are assuming the mortgage wouldn't be a factor. Hopefully if I've understood below correctly and there wouldn't be stamp duty payable if she gifted it to me and we are living together.
SDLT_Geek -would you be able to clarify -it sounds like no stamp duty would be payable assuming our situation below-

A gift between spouses can be free of SDLT, but points to bear in mind are:

(a)  The amount of the mortgage is likely to count as chargeable consideration for the purposes of SDLT.
We don't plan to have a mortgage at the point where she gifts the property to me. 

(b)  Even though this is an "additional property" the extra 3% should not apply for a transfer between spouses who are living together.
Sounds good- assume this should mean nothing should be payable if she gifts it to me in several years time?
(We will have already paid SDLT when we first purchase the property in her name (property worth~$350k) SDLT  upon her purchase includes the additional home extra SDLT rates +3%

(c)  The SDLT threshold, where the extra 3% is not due, is currently £250,000.
Assume not applicable due to above and we already paid SDLT upon her purchase. 

(d)  That threshold is due to fall to £125,000 after 31 March 2025.
Assume not applicable due to above and we already paid SDLT upon her purchase. 

Really appreciate the info and advice. thanks

On your figures it sounds highly unlikely that there would be any SDLT to pay on a transfer of the property from your spouse to you. 

The only complication I can think of is the issue of who pays off the mortgage.  To the extent that you pay it off, in the expectation of receiving the property in return, then those payments could count as chargeable consideration.  It is not a straight forward analysis.

MM2002

Danny44 said:

Yes she will qualify for the mortgage on her income alone. We plan to pay off the mortgage before she would gift the property to me so we are assuming the mortgage wouldn't be a factor. Hopefully if I've understood below correctly and there wouldn't be stamp duty payable if she gifted it to me and we are living together.
SDLT_Geek -would you be able to clarify -it sounds like no stamp duty would be payable assuming our situation below-

A gift between spouses can be free of SDLT, but points to bear in mind are:

(a)  The amount of the mortgage is likely to count as chargeable consideration for the purposes of SDLT.
We don't plan to have a mortgage at the point where she gifts the property to me. 

(b)  Even though this is an "additional property" the extra 3% should not apply for a transfer between spouses who are living together.
Sounds good- assume this should mean nothing should be payable if she gifts it to me in several years time?
(We will have already paid SDLT when we first purchase the property in her name (property worth~$350k) SDLT  upon her purchase includes the additional home extra SDLT rates +3%

(c)  The SDLT threshold, where the extra 3% is not due, is currently £250,000.
Assume not applicable due to above and we already paid SDLT upon her purchase. 

(d)  That threshold is due to fall to £125,000 after 31 March 2025.
Assume not applicable due to above and we already paid SDLT upon her purchase. 

Really appreciate the info and advice. thanks

I transferred 97% of our BTL to my wife for the same tax reasons , and with this my income was still considered for the mortgage. I had to complete the Form 17 but apart from a few costs to do this(about £350 if i remember rightly) that was it.