Splitting income on BTL Income - Declaration of trust & Severance of Joint Tenancy???

[steve234]

I own three BTL properties with my wife (as joint tenants). A few years ago, for tax planning purposes I changed the beneficial ownershipship and income to unequal proportions. I was advised at the time to submit HMRC Form 17 and declaration of trust (DoT) as evidence to HMRC which I did.

I intend to make further changes..however now reading up there appear different interpretations as to whether a DoT is only valid for Tenants in Common and thus also requires a Joint Tenancy Act of Severance and register of this via Land Registry SEV form which was different to the original advice. In summary it is not clear to me whether the below 4 steps are needed or just 3&4 as previously advised,

1. As joint tenants complete a Act/Notice of Severance on the Joint Tenancy (formal document between my wife and I)
2. Register act of severance "Form A restriction: application to enter (SEV)"

3. Complete a Declaration of Trust to confirm unequal proportions
4. Complete HMRC Form 17

Please can anyone help clarify? Many thanks in advance

[maths]

Nothing has changed.

I assume legal title is held in joint names and the beneficial interest is held as joint tenants. Assuming you/wife are in agreement then a joint declaration of trust would have converted the joint tenancy into tenants in common; typically contained in the trust would be a statement referring to the agreement to sever.

i do not believe registration at LR is strictly necessary but common practice
https://www.gov.uk/joint-property-ownership/change-from-joint-tenants-to-tenants-in-common

[AGoodman]

Agreed - a joint tenancy can only ever be 50/50 (strictly speaking, you are both considered to own the whole but, generously, HMRC do not tax you both on 100% of the income).

If you agreed in writing to hold the property in fixed proportions then that would impliedly sever the joint tenancy so that you then hold as tenants in common.

[steve234]

Thank you both, I do have another question-see below ree SDLT ...

In the interim I did get directed down the whole route of severing the tenancy and needing to submit a Form A restriction by one advisor: Following your replies I challenged this on https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9230 it outlines Ownership and income tax: legal background: joint ownership - presumption of joint tenancy. Where property is held in the joint names of ‘A and B’, it is presumed to be held beneficially as joint tenants, as described in TSEM9210.
This presumption can be displaced by evidence to the contrary, such as:
1. A declaration of trust of equal or unequal shares. For example, if there is a valid declaration that the property is held 25% for A and 75% for B.
2. In the case of real property, there is a restriction in the Land Registry title called a ‘Form A restriction’. This restiction is recorded in these terms; “No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court”. This restriction usually means that there is a tenancy in common instead (TSEM9220).
3. Notice of severance of the joint tenancy by one of the joint owners.
4. An act of severance- such as the bankruptcy of one of the owners or one owner taking out a loan secured on the property.
5. Evidence of a resulting or constructive trust - see TSEM9610-9620.[/i]

Question ?- do I assume right that in making the change in ownership incurs no SDLT…although there is a mortgage on one of the properties in question, it is a joint mortgage with my wife and although she would be getting a larger proportion eg 40/60 it would be gift and no monies involved. My assumption is based on HMRC “If the larger share is given outright as a gift - If you take a bigger share but don’t pay anything in return, there’s no ‘consideration’ given including taking on liability for a mortgage. You won’t pay SDLT, even if the value of the extra part of the share is more than the SDLT threshold. You don’t need to tell HMRC about the transaction.”

Thanks in advance