Deed of trust on property

by **chiefmissile** on Tue Aug 09, 2011 12:16 pm

I am married, but our family home is owned solely in my name, this means that my wife has no beneficial interest in the property unless we were to get divorced then she would be entitled to half. She does not work and we are now renting the property after having lived there for 5 years. Can i set up a deed of trust and give her a 99% share and then offset the rental income against her personal tax allowance. or do i have to get her name on the mortgage or both? Thanks in advance for any advice.

Regards

Andrew

by **Peter D** on Tue Aug 09, 2011 1:11 pm

I'm sorry to tell you this but the problem is bigger than that. As you have already left the property your wife has never lived there as a legal owner so a transfer to her now would loose your your Private Residence Relief and Letting relief in the future for up to £40,000 to offset against CG liability on disposal. Read HS283 on the HMRC web site and CG64950.
If there is a mortgage on the property in your name then you can deduct the interest from the rental income. If your wife owns ( beneficially) 99% then she can not deduct your interest form her rental income.
If you had transferred a share to your wife whilst living together in the property she would have inherited your PRR status and on disposal you would have attracted two sets of LR and CG Allowance on disposal. This would have kept the property free of CG liability for 6,7,8, or more years depending on what house prices do in the future.
You need to understand the effects of gifting her a share and run some numbers both from an IT point of view and a CGT point of view.
Regards Peter

by **chiefmissile** on Tue Aug 09, 2011 5:05 pm

Peter thanks very much,

I apprecite your advice as always. In simple terms what should i do now? Should i move back into the property then gift her 99% share? Then could i move out again and start renting right?

I am looking for a tax adviser on a client/adviser relationship to sort out some problems i have, before i get an enquiry, as i belive its only a matter of time, would you be interested? Do you have your own advice buisness? I will be repatriating back to the UK with my family in December after a 3 year absence on secondment with the military. Thanks in advance.

Regards

Andrew

by **Peter D** on Tue Aug 09, 2011 6:03 pm

It's not as simple as that as your intentions are important and where you are moving back to and whether you are remaining in the military and if you are going to buy another property as your main residence. I need more information. Regards Peter

by **chiefmissile** on Tue Aug 09, 2011 8:03 pm

Hi Peter,

We will be moving back to live in Military accommodation for my last posting, leaving the military 19 May 2014 with the intention of moving to Spain and using my UK property and Spanish property rental to supplement my 27 year military pension, my wife will not be seeking employment on our return to UK apart from the odd supply teaching, but intends to teach in Spain. Hope this helps.

Regards

Andrew

by **Peter D** on Tue Aug 09, 2011 8:46 pm

I assume you do not own any other property as your main residence ?. Only you know the number and you need to run them for yourself. The UK property, if you return to Military accommodation a fair distance form the property will allow you to claim the property as your PPR for the duration so CGT will not be an issue, but only is you continue to own it, a transfer will put this at risk. Regards Peter

by **chiefmissile** on Wed Aug 10, 2011 10:03 am

No we do not own any other UK property, when we move back our married quarter we will be in the same area as our military accommodation. The uk rental income will be taxed at 40% as i am a higher rate tax payer, i am looking for any legal way in which i can reduce the tax liability while my wife is unemployed. My mortgage at the moment is .87% so i would be paying around £280 per month to the taxman!!

What makes me angry about HMRC is that they openly discourage people from seeking loop holes for personal gain, but they in turn use tactics of their own which from a legal point of view contradicts the law of the land. As previously mentioned if i were to get divorced my wife would be entitled to half of the uk property, but for tax purposes she does not have any benificial interest, crazy.

Andrew

by **Peter D** on Wed Aug 10, 2011 10:42 am

I need some facts to progress this. How long have you been away from the property. What is preventing you from moving back in. There are rules around periods of absence that may help you from a CGT point of view. Regards Peter

by **chiefmissile** on Wed Aug 10, 2011 11:04 am

Morning Peter,

Thanks for your prompt response, we have been away from the property since March 2005, the property has been rented out pretty much from April 2005 to present day, with a couple of periods where it did not have any tenants. Nothing preventing us from moving back in, but we are trying to capitalise on our cheap MOD housing compared with the market rental value of our home, mortgage is £712 pm with an interest rate of .87%, MOD housing is £250 pm including water and council tax, so you can see the advantage of not moving back to our property, unless moving back will allow me to legally give my wife a share and allow me to offset the rental income tax against her, especially if we are going to use the income to supplement our income (Only if giving her a share will not increase CGT). Obviously when i leave the military and move to Spain i will be earning a pension, but will not be in the 40% tax bracket, so the tax paid on the rental income will reduce to 20%.

by **Peter D** on Wed Aug 10, 2011 11:41 am

As you are a serving crown servant then the property is deemed to be your PRR even when you are away. However there is a requirement to return to the property unless prohibited from doing so due to work placement etc. However you have chosen not to return for financial and convenience reasons so the normal 36 month rule will kick in from the date you took up married quarters.
You difficulty is not really this though it is the IT situation and ownership which I have already detailed to you. Before you ask, yes you would have to genuinely move back in, lock stock and barrel for a year or more but once in for a couple of months you could transfer a share of the property to your spouse. If you move out too quickly and back into barracks HMRC may deny you wife's claim to PRR. If this is genuine then she will inherit your PRR status and relief's. Before you make any changes/decisions you should, as you suggested, take some face to face advice, get this wrong and you could face a large CGT bill on disposal. Click on my name and PM your location as I may have a contact for you. Regards Peter