FHL/BTL purchase in joint name or wife's name

[danny44]

Me and my wife are planning to purchase a second property to use as a furnished holiday let (but possibly transition it to be a residential let in future if we found FHL unprofitable or too much work).
We were originally planning to buy the property in my wife's name given she is the lower rate tax payer and I am currently an additional rate taxpayer. However, I plan to stop work in four or five years time (and this purchase is also to provide me with a income stream pre any retirement). In 4-5 years time we'd want the income to count as mine rather than my wife's to utilise what would be my unused personal tax free allowance. How easy is it to transfer ownership of the property- specifically its FHL or BTL income from my wife to me in that scenario (assume no mortgage at that time)? Is it better to buy in my wife's name or joint names?
We also read that if we bought in our joint names and ran a FHL there is ability to apportion the income however we wish but we are not sure how we could apportion all the income to me if we we transitioned to a standard residential BTL in the future?
Appreciate any advice
Many thanks
Dan

[someone]

I'm not familiar with the rules for FHL so I cannot comment on that.

For regular residential let it is probably easier to have the property in joint names and have a declaration of trust setting out the beneficial ownership share (which initially would probably be 99% to your wife, 1% to you)

If you do this then all you have to do is submit form17 to HMRC to let them know that the income is shared in the actual proportion of ownership (otherwise it defaults to 50/50)

Changing the shares just involves varying the DoT (and letting HMRC know the new shares).

If you don't put the property into joint names then you can still create a DoT, but it's no longer a s3A excluded trust so you have to register it with the HMRC trusts registration.

[bd6759]

The 50/50 rule doesn’t apply to FHL.

[JezzR0]

For regular residential let it is probably easier to have the property in joint names and have a declaration of trust setting out the beneficial ownership share (which initially would probably be 99% to your wife, 1% to you)

If you do this then all you have to do is submit form17 to HMRC to let them know that the income is shared in the actual proportion of ownership (otherwise it defaults to 50/50)

Changing the shares just involves varying the DoT (and letting HMRC know the new shares).

Very interested in this - as am in the process of purchasing another BTL - I have a number already in my sole name and a couple with my wife as joint tenants. With my sole owned properties, i have a higher tax burden (than my wife) - so if I purchase this new property as Joint tenants with a Declaration of trust 99% to 1% in favour of my wife and notify HMRC, she would effectively be receiving 99% of the rent (and costs) which would be more tax efficient (20% rather than 40%) - she does spend 99% of the money anyway .

Question 1 - what is the impact of this if we chose to mortgage the property in due course?
Question 2 - if we change the proportion at a later date, is there any impact with HMRC (at present), or is it just 'OK'?
Question 3 - can we do this retrospectively to the other properties we own jointly?

Many thanks

[someone]

so if I purchase this new property as Joint tenants with a Declaration of trust 99% to 1% in favour of my wife

Tenants in Common. It's not possible to have a 99%/1% share as joint tenants.

Question 1 - what is the impact of this if we chose to mortgage the property in due course?

It should make zero difference. This is an absolutely bog standard tenants in common ownership. You do not even need to have a express (written) DoT in place, just that it makes it easier for HMRC purposes to prove the ownership proportions. The only thing mortgage companies care about is that the legal and beneficial owners are the same people. Some will refuse to lend if they are not.

Question 2 - if we change the proportion at a later date, is there any impact with HMRC (at present), or is it just 'OK'?

Assuming you're married then there's no CGT impact. But if there's a mortgage then the liability is deemed shared in proportions equal to the actual ownership. So a transfer of ownership might incur SDLT. (Note that some accountants say you can decouple the liability from the ownership, others say you cannot, and I have no idea which is correct - or even which is the majority view)

See example 3 here: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm00330a

Also https://www.legislation.gov.uk/ukpga/2003/14/schedule/4 paragraph 8 section 1B
The legal question is whether you can use 8(1)(b). I don't know whether 8(1B) defines the 8(1)(b) transfer quantum or explicitly excluding a transfer of liability in a DoT causes 8(1)(b) to trump 8(1B)

Question 3 - can we do this retrospectively to the other properties we own jointly?

Not retrospectively - you cannot "backdate" a transaction but you can change the proportion of ownership going forwards.
But see the comments to Q2 regarding SDLT. (You can also put a property currently in sole names into joint names - by putting it into joint names but keeping the ownership 99% to the original owner, 1% to the new owner, you can split the income 50/50 for tax purposes but avoid SDLT as the new owner will have a negligible amount of deemed liability on the mortgage - you would not submit a form 17 in this case)

[JezzR0]

Question 3 - can we do this retrospectively to the other properties we own jointly?

Not retrospectively - you cannot "backdate" a transaction but you can change the proportion of ownership going forwards.
But see the comments to Q2 regarding SDLT. (You can also put a property currently in sole names into joint names - by putting it into joint names but keeping the ownership 99% to the original owner, 1% to the new owner, you can split the income 50/50 for tax purposes but avoid SDLT as the new owner will have a negligible amount of deemed liability on the mortgage - you would not submit a form 17 in this case)

Thanks - read Joint names as Joint Tenants so thank you for clarifying.

This last part is possibly more interesting for me - allocation of rental income - so I could move all my properties into joint ownership 99%-1% with my wife and then just apportion the rent 50/50.
As they all have mortgages, would the mortgage companies not raise issue of the changed ownership status? If so, I guess it is something that could be achieved during remortgaging.

Haven't had chance to read the link and information - but will try to do that tonight. Thank you

[someone]

Typically you can transfer a mortgaged property into joint names without any issues from the mortgage company (their risk is reduced as there are now more people they can come after)

It probably depends on the mortgage company but when my wife and I did this it cost us 100GBP I think (for the mortgage, there were solicitors fees etc on top. The whole thing probably cost us c1000 but this was leasehold so slightly more complicated.)

We did get a new mortgage account number but no early redemption penalties or anything like that. (Again, it might depend on the company)

You don't have to "apportion the rent 50:50". if the properties are in joint names (Husband and Wife) then you MUST report the rent 50:50 unless you've submitted form 17 (in which case the rent is in the proportions of ownership)

[JezzR0]

You don't have to "apportion the rent 50:50". if the properties are in joint names (Husband and Wife) then you MUST report the rent 50:50 unless you've submitted form 17 (in which case the rent is in the proportions of ownership)

I read a bit around the stuff above (thank you for links to start) - it has thrown a question about CGT liability - am I right in thinking this will be Nil if transfer a small enough portion of the ownership? So an example, one of the properties was bought for £82K and now worth £400K+ - with allowable expenses, looking at £300K CGT if sold 100% - so if sold 10%, then £30K CGT liability (probably a little more complex than this, but just the idea)

Also regarding apportionment of rent, does this not have to follow the ownership - so if 90% me / 10% my wife, the rent would have to be apportioned the same way - so not much gain.

I took this from

[JezzR0]

I took this from

Not sure what I did to accidentally post before finished!

So I took the apportionment from https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

Use this form if you want to change the split of income to your actual share of ownership.

You’ll also need to provide evidence that your beneficial interests in the property are unequal, for example a declaration or deed.

So if apportion different to ownership, then could I fall foul of HMRC? Is it a grey area?

[someone]

So I took the apportionment from https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

Use this form if you want to change the split of income to your actual share of ownership.

You’ll also need to provide evidence that your beneficial interests in the property are unequal, for example a declaration or deed.

So if apportion different to ownership, then could I fall foul of HMRC? Is it a grey area?

It's not a grey area at all. Assuming you are married and the house is legally owned only by the couple jointly and there is nobody else as beneficial owner outside of the couple then:

You MUST declare the income 50/50 (this is in legislation) UNLESS:

You ELECT to declare the income in the proportions of ownership (this election is done via form 17) - and HMRC will ask for evidence[1] of the proportions of ownership you declare on the form 17.

(You cannot declare any other proportion - so if you make your wife a joint legal owner then it's 50/50 (default) or whatever proportion you transfer to your wife beneficially, these are the only two options for a married couple)

Note that if the proportions of ownership change after submitting form 17 then it reverts to the default 50:50 until you submit a new form 17. There is no way to "unelect" once you've submitted form 17. Form 17 is only valid for the period where the proportion of ownership actually matches what was elected.


Note that you don't have to do the form 17 declaration straight away. When my wife and I did this, we moved the property 99% to her, 1% to me but because I had some old carried forward losses to use up, we only submitted form 17 the year after the transfer of equity: So in year 1 (which was actually only about a month of income as the property was first let 1st March) it was 100% to me as only owner, in year 2 (after we did the ToE it was 50/50 - for ease of reporting we did the transfer as close to April 6th as possible) and in year 3 it was 99% to my wife, 1% to me as we submitted Form 17 on 6th April too. (HMRC had no problem with the date on the DoT being a year before the date on the form 17 - although they did point out that the election was only valid from the date of the election, not the date of the DoT - which, of course, was what we wanted anyway)

[1] This is where a properly drafted declaration of trust helps. While it's not strictly required, it's a very well known, definitive, signed and witnessed, declaration that is hard for anyone to dispute except on very restricted legal grounds.