BTL Remortgage predicament

kingstreet

pavvers said: So, is it possible for one owner of a joint property to get a mortgage just in their name?

No. It isn't. You can have more borrowers than owners, but not the other way round. HSBC used to offer what it called A2 Indirect Charge, but stopped a few years ago.

pavvers

BoGoF said:

Seriously, get yourself an accountant or tax advisor to unwind the tax mess you have created. Inheritance Tax gifts are nothing to do with Income Tax.

I don't see how this is a "tax mess".  My dad is perfectly entitled to gift me upto £3k per year from his own money.
But for arguments' sake, let's take that out of the equation.  Am I actually "forced" into taking an income from an asset because my name is on the paperwork?  I genuinely do not understand why I cannot surrender my income and let my dad have it all.

kingstreet

You can (IIRC) do a deed of assignment to transfer rental income from one owner to another but it may give rise to a tax liability on the disposal. Please verify this, as it's not my area of expertise.

pavvers

1) Yes he did/does.  I showed the figures in a previous reply.
2) OK, that I did not know 

pavvers

Thank you kingstreet that's good information, so we are stuck with getting a joint mortgage again!  That was always the intention when we bought the house so will just have to see what lenders can offer.

I've just done more reading on the 50:50 split thing and that only applies to marriages/civil partnerships and they can also apply to have the ratio altered.  For a parent & offspring, the government website just says the income should be in proportion to the ownership shares.

Brie

Maybe you could gift him the rental income instead of the other way around?  Don't know if that would fix things for your tax situation.  Basically have your name on the deed and the mortgage but agree that you are not taking any income? 

pavvers

Yes, possibly. That thought did occur to me in the midst of writing my replies.
The tax and mortgage elements are independent of each other, but still kinda linked due to the stress tests.  If we were both in the same tax band, basic or higher, then it wouldn't make any difference. I was just trying to see if I/we could take advantage of my dad being basic rate, as by including me we're penalising ourselves over a problem that doesn't exist in reality.  The lenders just assume there's less rental income available to pay their loan back because 1 or more of the borrowers pays more tax.
But, kingstreet's reply has made that academic now as we must have the mortgage in both our names.

silvercar

Forget the £3k gifting, that is nothing to do with your current issues.

If you own jointly then hmrc assume 50/50 unless you tell them otherwise when you first starting letting or on purchase.

Rental income follows the ownership. If you want to change the 50/50 you need to transfer the portion and to do so may create a CGT liability on the person “selling” some of their share. (Only spouses can transfer without giving rise to CGT). 

Assuming that transferring is too costly, accept you own 50/50. Lenders will consider other surplus income, if the profit on the rental isn’t sufficient to justify the mortgage you need. So if you earn enough, it doesn’t matter that the profit on the rental is relatively low.

pavvers

Thank you for the concise answer.
I didn't realise that lenders would take other income into account too.  We had to provide payslips etc initially but as we have always remortgaged with the same lender that hasn't been necessary since.  So I have assumed that they were only really interested in the rental income being able to cover the mortgage.  Current lender isn't very competitive at the moment so might have to go elsewhere, hopefully rates drop a little in the meantime.

pavvers

I have done some more reading up on this situation.  I cannot post links but if anyone is interested enough, please paste the following into Google and read the article from the taxinsider website that come up:

If a property is owned jointly by two persons who are not married or in a civil partnership, the rental profit is not automatically split 50: 50.

Rather the income split is in whatever proportion they agree between themselves.

In fact; here's the example that they give:

Rose, Lily, and Poppy are sisters. They jointly own a cottage which they inherited from their grandmother in equal shares. The cottage is rented out, generating rental profits of £6,000 per annum.

 

Rose and Lily have graduated and are working. Poppy is a student. To help Poppy out while at university, they agree that Rose and Lily will receive 10% of the rental profits each, with Poppy receiving the remaining 80%. 

 

The split for tax purposes follows the actual split, so Rose and Lily are each taxed on profits of £600, while Poppy is taxed on profits of £4,800.

 

Practical tip

Where property is jointly owned, consider the optimal allocation of profits for tax purposes and whether this can be achieved given the nature of the relationship between the joint owners.

Thus, my father and I have decided that he receives 100% of the rental income.  It's not in writing, but it doesn't have to be.  And as I've stated in previous replies, he is legally entitled to gift me up to £3k per year.  I'm an only child so no jealous siblings to worry about!

I appreciate most of you were trying to help but were perhaps applying the rules of married couples.  I freely admit that I did not know there were different rules for a parent & child, siblings, group of friends etc but having read the above article I am satisfied that I/we are doing nothing wrong with regards to taxable income.

I do also appreciate that this has no bearing on the mortgage application.  We will have to have the tougher stress tests applied because of my higher rate income tax band, but that's a less bitter pill to swallow in the grand scheme of things.