Transfer of rental income, sole owner of mortgaged property

by **djandseb** on Wed Oct 19, 2011 4:53 pm

Hello Taxationweb,

I think I was not very clear on my initial message – I will clarify.

I am the sole owner of a mortgaged property that I am planning to let next year. My wife has no income and we would like to leverage her lower rate tax status to be more tax efficient.

If possible I would like to remain 100% legal owner and keep the mortgage as is (i.e. in my name) and transfer most/all rental income to her.

I have read that a declaration of trust can be used in some situations to transfer the beneficial interest to one spouse (e.g. 1%/99%).

Here are my questions:
1. Is it possible to do this transfer with a declaration of trust if the property is not owned in joint names? (which I believe is our case since I’m sole owner with mortgage in my name – although we are a married couple)
2. If so, can the mortgage (in my name) be considered as an expense to calculate her rental income? In which proportion (1%?)?

Thanks in advance for your help.

by **section 44** on Wed Oct 19, 2011 4:56 pm

djandseb wrote:1. Is it possible to do this transfer with a declaration of trust if the property is not owned in joint names? (which I believe is our case since I’m sole owner with mortgage in my name – although we are a married couple)

Yes. You would decalre that you hold the property on trust for the benefit of each of you and your wife in proportion 1:99.

djandseb wrote:2. If so, can the mortgage (in my name) be considered as an expense to calculate her rental income? In which proportion (1%?)?

There are differing views on this forum around this point. In my view, no. If your wife is not a borrower then she cannot claim a deduction for any interest.

by **djandseb** on Wed Oct 19, 2011 5:06 pm

Hello Section 44, and thanks for coming back to me that quickly.

Just a follow up question: since I need to remortgage, would a joint mortgage application combined with the addition of my wife to the deed allow her to expense 100% of the mortgage interest?

by **section 44** on Wed Oct 19, 2011 5:12 pm

If your wife was also a borrower then she would be entitled to claim a deduction for some of the interest. The question is, how much. Views on this point vary.

In my view, she would be entitled to deduct half of the interest incurred.

However there are others who consider that she would be entitled to claim a proportion of interest equal to her share of the rent (i.e. 99% of the interest).