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Where Taxpayers and Advisers Meet

Rental Splitting With Spouse/Mortgage Interest

aviemore
Posts:6
Joined:Tue Dec 01, 2009 11:52 pm
Rental Splitting With Spouse/Mortgage Interest

Postby aviemore » Fri Feb 22, 2013 3:30 pm

Hi,
I own 5 BTL flats with interest only mortgages all in my name only. I bought these when I was single, but I am now married.

I propose to change the beneficial ownership of these flats by Declaration of Trust to a 50:50 split with my wife.

As I understand it, 50% of the "income" will now be chargable to her tax and 50% to mine.

My first question is: Can half the mortgage interest and half the maintenance charge be offset against her share of the rents?
And secondly: If I changed to beneficial ownership to 100% my wife, could she offset all the mortgage interest and maintenance charge or none of it?

Many thanks
David

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Rental Splitting With Spouse/Mortgage Interest

Postby pawncob » Fri Feb 22, 2013 3:52 pm

I thought this was dealt with here:
http://www.taxationweb.co.uk/forum/tran ... =Form%2017
With a pinch of salt take what I say, but don't exceed your RDA

aviemore
Posts:6
Joined:Tue Dec 01, 2009 11:52 pm

Re: Rental Splitting With Spouse/Mortgage Interest

Postby aviemore » Fri Feb 22, 2013 4:07 pm

Please excuse me asking the questions again but sometimes what is quite clear to the experts on here is a little less so for us layman trying to make sure we understand completely what is being said.

On the thread you refer to, I find that maths said:
"However, assuming you are the sole legal owner, you could execute a declaration of trust under which, for example, you could transfer a beneficial interest of say 10% yet giving the spouse the right to 100% of the income (and also responsibility for expenses)."

That implies that I can make my spouse responsible for her share of the expenses, but the mortgage is in my name and the mortgage payments are made by me, although they could be moved to a joint account. Does that create a problem?

Many thanks
David

P.S. I have asked my accountant and solicitor who both confess to a lack of familiarity with this area of tax law.

section 44
Posts:4467
Joined:Thu Oct 30, 2008 12:47 pm

Re: Rental Splitting With Spouse/Mortgage Interest

Postby section 44 » Fri Feb 22, 2013 4:51 pm

You have to appreciate that opinions vary. We are all interpreting law but ultimately a court from whom’s decision there is no appeal determines the correct interpretation. Until then they are merely opinions and, as such, vary.

Maths and I agree have different views on this point. Maths may be correct or I may be correct. We may never know.

I consider that you can only declare a trust over assets and not liabilities (if you could declare a trust over liabilities then it would be easy to become debt-free ). Accordingly, your wife wouldn’t take on any of your mortgage obligations as a result of you declaring a trust over the property.

aviemore
Posts:6
Joined:Tue Dec 01, 2009 11:52 pm

Re: Rental Splitting With Spouse/Mortgage Interest

Postby aviemore » Fri Feb 22, 2013 5:08 pm

Hmmm, many thanks for that s44. Food for thought.

In our case, the net result of such a 50:50 beneficial arrangement, with me paying and claiming the mortgage interest and maintenance charges, would be that my half of the rents would be completely offset by the total mortgage interest plus maintenance charges, thus incurring no tax liability at all, and my wife's half of the rents would use up her personal allowance plus a few hundred quid and therefore be virtually tax free too.

Seems to work out OK for us in this exact set of circumstances, we'd save several £K annually. Is there a banana skin that I'm not seeing?

Best regards
David

section 44
Posts:4467
Joined:Thu Oct 30, 2008 12:47 pm

Re: Rental Splitting With Spouse/Mortgage Interest

Postby section 44 » Fri Feb 22, 2013 5:17 pm

The banana skin is, as always, that it is self-assessment and you may find out years later that what you did was wrong and have interest/penalties. Unfortunately the body of case law and HMRC guidance that we have only goes so far.

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: Rental Splitting With Spouse/Mortgage Interest

Postby etf » Tue Apr 05, 2022 3:18 pm

Over the years there have been numerous threads discussing Declarations of Trust and various points that flow from their use. HMRC are now also offering advice on their own forum in this area and I have copied below a link which may be of interest:

https://community.hmrc.gov.uk/customerforums/ifp/cb6c8e6d-e46a-eb11-8fed-00155d9c927f

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Rental Splitting With Spouse/Mortgage Interest

Postby bd6759 » Tue Apr 05, 2022 4:53 pm

Why the random comment on a thread which is over 9 years old?

Your link highlights how poorly trained the "HMRC Admins" are!

etf
Posts:1278
Joined:Mon Nov 02, 2009 5:25 pm

Re: Rental Splitting With Spouse/Mortgage Interest

Postby etf » Wed Apr 06, 2022 10:41 am

I posted it because over the years of Taxationweb this topic has caused much debate e.g. form 17 to submit or not submit, and with HMRC now entering the fray I thought it an interesting thread to read to see how thoughts compare.


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