Transferring rental income to my wife

[sjgower1]

Hello all,

Sure this has been done to death but would be great to get some high level thoughts. I own a flat solely in my name from ca. 10 years ago. I used to live in it and now a rental property. I am a higher rate tax payer, my wife is currently on mat leave and will go back to work soon PT but should be well under the higher rate bracket as a result. So, what I want to know is what is the most cost effective way to push the rental income over to my wife. Currently she is not on the deeds, not on the mortgage, nothing at all. Would I need actually transfer it to her? If so any stamp duty issues, how would my CGT be handled etc etc. Many thanks!

[bd6759]

Income follows beneficial ownership. So your wife would need to have ownership of the property before she could receive the income. Thuis does not necessarily mean transferring legal title. You could gift her a share (or all) of the property by making a declaration to that effect. It doesn't need a solictor, but it would be recommend to use one. Google 'declaration of trust' for more information.

There is no CGT on gifts to a spouse. It is treated as a no gain/no loss disposal.

You will need to be careful though. At the moment you have residence relief and lettings relief to offet against any future capital gain. Your wife may not be entitled to these, so they will be lost if you give the the proeprty to her.

[maths]

At the moment you have residence relief and lettings relief to offet against any future capital gain. Your wife may not be entitled to these, so they will be lost if you give the the proeprty to her.

This may be surmountable by transferring less than 100% of the beneficial interest to wife and then wife transferring back prior to any sale.

[sjgower1]

Thanks for the replies. I read on other threads that I could transfer 1% to my wife using a declaration of trust and then we could split the income 50:50. Is this true? This way I would also protect my PPR and lettings relief, well except for 1% which is fine or are you sure that transferring the flat back to me at a later date would restore my PPR and LR? I read elsewhere that it would be lost when it goes to my wife. thanks.

[Mrshare]

Did you find out that this was the case

[maths]

Thanks for the replies. I read on other threads that I could transfer 1% to my wife using a declaration of trust and then we could split the income 50:50. Is this true? This way I would also protect my PPR and lettings relief, well except for 1% which is fine or are you sure that transferring the flat back to me at a later date would restore my PPR and LR? I read elsewhere that it would be lost when it goes to my wife. thanks.

A transfer of 1% or more of the beneficial interest to your wife would cause rents to be automatically split 50/50 IF at the time of transfer the property legal title was held jointly which is not currently the case.

Assume (legal title remains in H's name only) and say 99% of the beneficial interest is transferred from H to W; H then owns 1% and W 99%.

At the time of transfer of the 99% interest in the property it is not the sole or main residence of H (or indeed W). Accordingly, W will acquire her 99% interest at 99% of the original cost of the property to H at the date of transfer. On a future sale of her 99% no relief for private residence or lettings relief will be available to her. For H, both reliefs will be available to him re his 1%.

Assume. however, that prior to any sale W transfers her 99% back to H who then owns 100%. H then sells. H's period of ownership of his 100% is treated as commencing at the date of his original purchase (say 15 years ago). Let's assume he lived in the property for say 3 years and has let it out for the next 12 years.

In computing H's capital gain, [3 + 1.5]/15 ths of the gain qualifies for private residence relief and [10.5/15] ths of the gain qualifies for lettings relief.

[Mrshare]

Does a 1% transfer to wife using a declaration of trust result in a split in the income 50:50

if this was the case it would not make much difference to the CGT when the property is sold.

is this correct.