Change in beneficial ownership

[prudence01]

Hi

My wife is sole legal owner of a property, which has been rented out since she bought it. We would like to transfer the beneficial ownership to 99% in my favour and 1% allocated to her with the intention that any net rental income would be declared on the same basis (to use up my lower rate tax band).

There is a mortgage of £74k and the property is worth approximately £165k. I have spoken with two solicitors and the mortgage company and received varying advice.

Ideally I would prefer not to change the legal ownership and am hoping that a declaration of trust could be used to achieve the change.

Any advice re the following would be wonderful:

- Do I need to inform Land Registry?
- Do I need to inform the mortgage company?
- Do I need to inform HMRC?
- Would I need to use a solicitor (there are various templates available online)?

In case it is relevant, we have no intention of selling the property in the foreseeable future. When the time is right, I assume we can change the beneficial ownership to 50/50.

Opinions gratefully received.

[someone]

My non-expert understanding:

SDLT will be due on 74K (3% if you own another home, 0% otherwise). Some say you can transfer ownership without transferring mortgage liability in which case there will be no SDLT but you could not then claim mortgage interest relief. She will also have a liability for the mortgage without any asset to pay it off.
If she transfers half of the property then it will be below the 40K where the additional rate SDLT kicks in. I don't understand the rules around linked transactions so I don't know if she could transfer more to you later or not without incurring the 3% charge.

1. No need to inform land registry. You can register the trust which will prevent your wife from selling it without your knowledge and consent but there's no need to. (Were your wife to sell it without your consent - it would effectively be stealing from the trust)
2. Don't know. Probably you should but I doubt the mortgage company will care so long as the mortgage gets paid.
3. No. If your wife stays sole legal owner then the income is split as per the beneficial interest. If your name goes onto the legal title then you do have to inform HMRC (Form 17) if you want the income shared other than 50/50
4. No - but see above about SDLT and mortgage liability.

[maths]

A declaration of trust should achieve your objective.

On the basis that as transferee you do not agree to take on the mortgage no SDLT charge arises.

Your wife as registered proprietor is required to notify Land Registry (a so-called Form A restriction).

No need to notify the mortgage company (technically depending upon their Terms and Conditions this may be necessary but in practice failure to do so is unlikely to be problematic).

No need to inform HMRC (although they may require evidence to support the rental income split in due course).

No legal requirement to use a solicitor.

[someone]

Your wife as registered proprietor is required to notify Land Registry (a so-called Form A restriction).

Surely if the wife is the only trustee then she should not enter a form A restriction.

[maths]

Rule 94(1) of the Land Registration Rules 2003.

[someone]

Thanks. But it was the 1925 Trustee Act that I was missing - sole trustee cannot give valid receipt for proceeds of sale for trust of land. Once I googled "valid receipt" instead of "good receipt" I found it.

But a form a restriction might make it difficult if the OP ever wants to remortgage.

[maths]

LPA 1925 s27.

No problem re remortgaging.

[prudence01]

You guys know your stuff!

So the dilemma is either (a) pay 3% stamp duty on the outstanding mortgage or (b) don't have the benefit of being able claim the mortgage interest as a tax deductible expense. Is that correct?

Hypothetical question:
How would it change the situation if I had a time machine and could go back to create a declaration of trust as at 31/03/2016 (i.e. before the introduction of the additional/second home stamp duty charge)? I assume there would be no SDLT and we would have the ability to claim mortgage interest relief?

Pru

[maths]

So the dilemma is either (a) pay 3% stamp duty on the outstanding mortgage or (b) don't have the benefit of being able claim the mortgage interest as a tax deductible expense. Is that correct?

No.

Deduction re interest is only possible for the person who contracted with the mortgage company, presumably wife.

Answer to hypothetical question is "No".

[prudence01]

Understood.

Perhaps wishful thinking, but could my wife declare 1% of the rent and 100% of the mortgage interest?

Do you know of an off-the-shelf DoT that would fit the bill - I've found a couple but not 100% if they would be acceptable.