Income and CGT tax optimisation, no income spouse

[djandseb]

Hi all,

I realise this is has been covered to some extent in other topics, but I would like to double check whether the approach below is the most beneficial tax wise when letting, then selling a property.

Here are our circumstances: I purchased our flat in my name early 2006, and my wife and I have been living there up until now. We got married mid 2007, and current mortgage is in my name only (I am due to remortgage in January 2012). My wife has currently no earned income and is not planning to go back to work in the next few years.

Our intention is to start letting the flat mid next year and to ultimately sell it after a few years.

We are trying to see what the best approach is to minimise income taxes while we let, and future CGT liabilities too.

Based on a message from Peter D, it seems that the approach would be the following:
• Become Tenants in Common (currently I am the sole owner)
• Apportion the beneficial ownership up to 99% to my wife with a Declaration of Trust
• When selling, change the % to leverage my CG annual allowance

Some questions:
1. Assuming we have to in order to reduce our taxes, how do we become Tenants in Common? Are there tax considerations when we do it (SDLT?) or when we sell?
2. Is beneficial ownership up to 99% + Form 17 really necessary, or can it be simply 100% beneficial ownership with no Form 17 as suggested by Maths in another message?
3. Does the fact we have a mortgage on the property make any difference (in particular, should we go for a joint mortgage in January?)

Apologies if the above seems trivial – hopefully your answers will help future visitors on this forum.

Thanks in advance for your help!

[pawncob]

1. Read this:http://www1.landregistry.gov.uk/upload/documents/public_guide_018.pdf
No tax considerations as it's been (to date) your PPR.
2. This could be a long debate. I'd stick to 99%, because it's proven.
3. If the property is mortgaged jointly, half the interest charged will apply to someone without any income tax liability, so no relief, and it also detracts from the 99-100% ownership argument.

[Peter D]

OP, can you point me to the thread were I suggested T in C. There is more to this than you have detailed. Regards Peter

[djandseb]

The threads I was referring to are the following:

Peter: http://www.taxationweb.co.uk/forum/husband-wife-reducing-income-tax-due-on-rent-t35997.html?hilit=peter%20Apportion%20the%20beneficial%20ownership#p131532

maths: http://www.taxationweb.co.uk/forum/transfering-btl-property-to-spouse-t29713-20.html?hilit=tenants%20in%20common%20peter#p108190

[Peter D]

So what I detailed to you clearly had two different outcomes so why do you suggest I advised T in C because as I and Maths advised that is a restriction compared to 'joint' onwership but this must be done prior to you moving out of the property do your spouse inherits both the PPR and LR reliefs. You should have kept this in the same thread really. Regards Peter

[djandseb]

@pawncob:
Many thanks for your feedback and for the link.

@peter:
I realise my message was misleading; I did not mean that you suggested T in C, but that based on your answer in the other topic it seemed to me that being T in C would then allow me to follow the same approach.

I think the main difference between our situation and the one in the other thread seems is that our property is not in joint names. As I understand, if we keep it this way (property in my name only) the mortgage cannot be joint either.

On that basis, which options do we have to tranfer the rental income to my wife, and can she still claim the mortgage / insurances as expenses if these are in my name?

Also, which of these options is the best from a CGT perspective?

Thanks