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MODIFY Current Beneficial Interest when Remortgaging BTL (Married Tenants in Common)?

JetPil0t
Posts: 4
Joined: Sat Jul 11, 2015 12:19 pm
Location: England

MODIFY Current Beneficial Interest when Remortgaging BTL (Married Tenants in Common)?

Postby JetPil0t » Fri Sep 08, 2017 5:10 pm

Hi there, sorry I know this is similar (but not the same) as other questions in the most recent pages of the board, so thanks for your patience in dealing with the all-too-familiar sounding question!

- My wife and I own one BTL property (Tenants in Common) with a mortgage, circa 235k. I owned it as residential for 3y but we then took out a joint remortgage on it 2y ago (Tenants in Common, unequal split).
- We are looking at remortgaging it later this year, as the discount rate is coming to an end.
- With the introduction of Section 24, we are also looking to minimise tax on rental profits.
- Currently the Declaration of Trust doesn't specifically mention RENTAL income in terms of how it is apportioned (only the SALE is discussed).
- As we are married, HMRC currently assume 50/50 split in terms of taxation on rental profits. The Declaration was done correctly through a solicitor but we never submitted a Form 17 at the time (roughly 2 years ago) as we didn't know anything about it and 50/50 split seemed fine as we were both lower rate tax payers.
- I'd like to make the Beneficial Interest such that she is entitled to 99% of the rental income and 1% for me (or whatever the max permissable split is). This is because I am now a higher rate taxpayer and she is looking after our child full time and therefore (once maternity pay ends) will have no income at all. Seems like a waste of her personal allowance.

So:
1. My solicitor has said that when remortgaging this time (which will be with a different lender) it will be necessary to submit new entries to the Land Registry and a new / amended Declaration of Trust can be done at the same time, to change the Beneficial Interest. Is this correct?
2. I understand a Form 17 has to be submitted within 60 days of the Declaration of Trust being signed but since we never submitted a Form 17 when we bought the property 2y ago and signed the original Declaration of Trust, will this new Form 17 be accepted (I think this all hinges on the nuances of the answer to question 1 above - basically is it critical as to whether the Declaration of Trust with the NEW 99/1% Beneficial Interest is a NEW Declaration or is an AMENDED Declaration treated as new by virtue of having to be signed again by both parties, with a new date?)
3. Is there likely to be a SDLT or CGT bill triggered by doing this? (happy to provide any relevant numbers, if required)
4. If there is a tax bill triggered, are any reliefs likely to be available? (We lived in this property for 3 years before renting it out and moving to a new home, 2 years ago)
5. Assuming we get through all those hurdles, I understand from reading various other posts that an undesirable tax bill may be triggered if we ever sell this property - is it just a case of proper planning and varying the Beneficial Interests via another Declaration of Trust before selling?

I've tried to provide as much information as possible but please ask if I've omitted or been vague on something that is critical.

Thanks for any help in advance!

maths
Posts: 6900
Joined: Wed Aug 06, 2008 3:25 pm

Re: MODIFY Current Beneficial Interest when Remortgaging BTL (Married Tenants in Common)?

Postby maths » Sat Sep 09, 2017 3:12 pm

1. My solicitor has said that when remortgaging this time (which will be with a different lender) it will be necessary to submit new entries to the Land Registry and a new / amended Declaration of Trust can be done at the same time, to change the Beneficial Interest. Is this correct?


Correct.

2. I understand a Form 17 has to be submitted within 60 days of the Declaration of Trust being signed but since we never submitted a Form 17 when we bought the property 2y ago and signed the original Declaration of Trust, will this new Form 17 be accepted (I think this all hinges on the nuances of the answer to question 1 above - basically is it critical as to whether the Declaration of Trust with the NEW 99/1% Beneficial Interest is a NEW Declaration or is an AMENDED Declaration treated as new by virtue of having to be signed again by both parties, with a new date?)


Simply execute a new declaration.

3. Is there likely to be a SDLT or CGT bill triggered by doing this? (happy to provide any relevant numbers, if required)


No CGT charge; see below. SDLT is in principle payable including the 3% additional charge.

4. If there is a tax bill triggered, are any reliefs likely to be available? (We lived in this property for 3 years before renting it out and moving to a new home, 2 years ago)


Inter-spouse transfers precipitiate no CGT charge. I'm unclear if you have both owned the property from its purchase?

5. Assuming we get through all those hurdles, I understand from reading various other posts that an undesirable tax bill may be triggered if we ever sell this property - is it just a case of proper planning and varying the Beneficial Interests via another Declaration of Trust before selling?


On a future sale whether a CGT charge will arise depends upon the timing and market value. Private residence relief and lettings relief may both apply.

JetPil0t
Posts: 4
Joined: Sat Jul 11, 2015 12:19 pm
Location: England

Re: MODIFY Current Beneficial Interest when Remortgaging BTL (Married Tenants in Common)?

Postby JetPil0t » Sun Sep 10, 2017 8:56 am

Hi maths, thanks for taking the time to reply.

No CGT charge; see below. SDLT is in principle payable including the 3% additional charge.

As I suspected. If the size of the transfer is less than £125k (which it will be) then it looks like we still have to pay 3% because we are both names on 2 properties including this one :(

So here's a followup question - we are already Tenants In Common (50/50 Beneficial Interest) and will execute a new Declaration as part of the remortgage, as described above. As a reminder, this is an interest-only remortgage, slightly increasing the size of the mortgage. But how do I work out how much the SDLT is (roughly)? I believe the "Chargeable Consideration" is my wife will have a theoretical increase in mortgage liability from 50/50 to 99/1 - is that correct?

In which case, since we are increasing the size of the mortgage from X to Y as part of this process, which mortgage figure is relevant for working out the amount of Beneficial Interest being transferred? Also, presumably the current Beneficial Interest she already has (50% of current mortgage balance, X) is deducted when working out the size of the transfer?

Any references from HMRC or otherwise greatly appreciated!

Inter-spouse transfers precipitiate no CGT charge. I'm unclear if you have both owned the property from its purchase?

Thanks, I agree. Just to be clear, the property was initially owned by me for 3 years (purchased before we were married) and we lived in it. After 3y we were at this point married and we remortgaged it (approaching 2y ago) from capital repayment to interest only and let it out. At that point when we remortgaged it, we put my wife onto the new mortgage (Tenants in Common) and executed the Declaration of Trust that currently says we have 50/50 Beneficial Interest. At the time of this remortgage a Transfer of Equity was done so SDLT was discussed with the solicitor but was not payable (under the old rules!). If that changes any of your previous remarks please advise!

maths
Posts: 6900
Joined: Wed Aug 06, 2008 3:25 pm

Re: MODIFY Current Beneficial Interest when Remortgaging BTL (Married Tenants in Common)?

Postby maths » Sun Sep 10, 2017 2:05 pm

I understand that HMRC practice on a remortgage coupled with a transfer of a beneficial interest is to base the amount of chargeable consideration on the original mortgage being replaced not the replacement mortgage.


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