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Where Taxpayers and Advisers Meet

BTL Transfer of Equity to Daughter

NickPrice
Posts: 20
Joined: Fri Sep 11, 2015 12:39 am

BTL Transfer of Equity to Daughter

Postby NickPrice » Sun Dec 02, 2018 6:30 pm

Hi,

I own a rental property with a 70%LTV mortgage on a property worth less than 150K. Via a trust deed I intend to transfer equity to my daughter such that she owns and receives income on 45% of the property. Mortgage liabilities are not to be transferred. I understand such a transfer to be stamp duty exempt (but CGT may arise). Now, the question is would it be allowable to keep the mortgage at 70% LTV when I only own 55%, or am I obliged to pay it down to 55%? Even on 55% of rental income, I can easily service the 70% LTV mortgage and have a small profit, but is it objectionable from a taxation standpoint?

AdamS93
Posts: 220
Joined: Tue Sep 26, 2017 6:28 pm

Re: BTL Transfer of Equity to Daughter

Postby AdamS93 » Sun Dec 02, 2018 6:53 pm

From a tax point of view, the there are potentially a number of issues that will need to be considered.

But, I think your biggest stumbling block will be convincing the bank to allow you to transfer some of the property to your daughter, especially with a high ltv % and the amount you are planning to transfer.

I would find out if the bank are happy with this before you consider any of the tax implications.

NickPrice
Posts: 20
Joined: Fri Sep 11, 2015 12:39 am

Re: BTL Transfer of Equity to Daughter

Postby NickPrice » Sun Dec 02, 2018 7:44 pm

Hi,

Thanks for the reply. I have a portfolio mortgage across a set of properties and the combined LTV is very low, so the bank is not a problem. I was more asking about the HMRC and whether they have any rules.

AdamS93
Posts: 220
Joined: Tue Sep 26, 2017 6:28 pm

Re: BTL Transfer of Equity to Daughter

Postby AdamS93 » Sun Dec 02, 2018 10:59 pm

As you say, you’ll have CGT to consider, with the proceeds deemed to be market value.

I would confirm the SDLT position. You are transferring 45% of the property but only have 30% equity.

The gift will be a PET for IHT.

If you daughter doesn’t already own a property, this gift will mean she will lose the usual benefits a first time buyer would get when they buy their first property.

Obviously, the income tax position will change.

bd6759
Posts: 3069
Joined: Sat Feb 01, 2014 3:26 pm

Re: BTL Transfer of Equity to Daughter

Postby bd6759 » Sun Dec 02, 2018 11:33 pm

You will need to restrict the loan interest as you suggest.

maths
Posts: 7528
Joined: Wed Aug 06, 2008 3:25 pm

Re: BTL Transfer of Equity to Daughter

Postby maths » Tue Dec 04, 2018 1:09 pm

You can execute a declaration of trust under which you continue to hold the legal title only in your name and confirm that you hold it as to 55% beneficial interest for you and 45% for daughter.

There is no need for her to take on any part of the mortgage (should be confirmed in declaration). You would remain the sole mortgagor and solely responsible for it.

CGT would arise even on a gift of the 45%.

No SDLT as no consideration.

IHT, but may fall within your nil rate band or exemption if you survive 7 years.

There is much discussion as to whether in the above scenario consent from the mortgagee is needed. This depends upon the relevant terms and conditions. In practice it would appear very few people request such consent basically because the mortgagee's charge is not adversely affected.


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