BTL transfer to spouse

[jeffy]

Yep...another one of these questions. I apologise in advance - i'm just trying to get my head round what could be the best option.

I bought a property in July 2005. In August 2012 I moved away for work and rented a flat with my now wife. In January 2014 we bought a property together where we now live.

The first property is still in my sole name and at the moment I receive all rental income from it. I consider myself an accidental landlord (not that this is relevant!)and have thought about selling the property numerous times but at the moment I have long term tenants who want to stay. I think I will probably keep it until they want to leave but change my mind every other day!

What I would like to know is: can I 'gift' my wife the property (ie. 0% me / 100% hers) and have the rental income paid in to her account, making it taxable at her income rate (i'm a higher rate taxpayer).

The house is entirely in my name at present, as is the mortgage. If I can do as I suggest above do I need to change who pays the mortgage/name on the mortgage? Obviously I would need to change the name on the deeds from me to her.

Finally, if any of this is acceptable, how does this affect potential capital gains tax when selling the property? When I last had a look at my liability if disposing of the house, I realised that gifting her 50% of the property would actually lower my Private Primary Residence relief (she would get none for when I lived there without her), so if she now owned the house would this affect it or when time came to sell would I just transfer it back in to my name (rough calculations suggest at the moment that the amount I would lose in PPR would be greater than the amount I could gain from her CGT allowance).

Thanks for any tips/pointers/ideas/corrections to reducing my income tax a bit!

[bd6759]

First thing to note is that you cannot 'gift' the property to your wife. You can, however, gift it. A gift is an unfettered right to the property (with no 'apostrophes'). It will be hers to do with as she pleases. I say this because you later suggest that you could transfer it back to yourself. You wont be able to do that. The property is your wife's and you have no rights to transfer it to anyone.

The transfer is relatively straightforward. You can create a declaration of trust. This declares that you hold the proeprty for the benefit of you wife. The property stays in your name, but in name only. The benefit of the proeprty belongs to your wife.

Before you do that you need to check with your mortgagor. They have a charge over the property which prevents you giving it away. Some mortgagors accept this scenario, but others do not. They have an agreement with you that you will repay the loan and they have rights over the property if you fail to do so. Giving your rights to your wife adds a complication.

Once your wife owns the property, she will be liable to tax on the rental income. Note though that your wife does not have a mortgage. She will have no interest costs to reduce her tax libaility. You will not be able to claim any relief for the interest because you no longer have a property business.

You are correct with the CGT scenario. As it stands you have PPR and lettings relief. Your wife will not, so when the property is sold the whole gain (using your original purchase cost) will be taxable on her.

You will not be able to claim PPR and lettings relief if your wife is generous enough to give it back to you some time in the future. You will lose that history when you dispose of it to her.

[maths]

Before you do that you need to check with your mortgagor. They have a charge over the property which prevents you giving it away. Some mortgagors accept this scenario, but others do not. They have an agreement with you that you will repay the loan and they have rights over the property if you fail to do so. Giving your rights to your wife adds a complication

"They have a charge over the property which prevents you giving it away". This not quite true. The MORTGAGEE (!!) has a legal charge over the property. Giving a beneficial interest to your spouse is not a problem.

This area has been discussed before on numerous occasions and we all seem to have a slightly different view.

[jeffy]

Thank you for the extremely informative post. So I can potentially reduce the income tax through a gift but will potentially end up paying more in CGT in the future through lost exemptions. This makes sense really but it at least helps me to know where I stand.

OOI, while I can't claim mortgage interest back as I no longer own the property, I assume she can at least claim the usual running costs/expenses against said property income?

Saying all this, I think this is pointing me in the direction of selling anyway.

[bd6759]

This area has been discussed before on numerous occasions and we all seem to have a slightly different view.

There are different views. I do not suggest that your view is wrong. You have said that you have anecdotal evidence of lenders not being bothered about this. It is however a change that I believe should be notified to the lender.

Mortgagee, mortagee. Like many, I always get these the wrong way round. I'll try to remember to use lender in future

[someone]

Isn't there a possible issue with stamp duty, including the extra 3% as the property is mortgaged?

Can the OP give a beneficial interest in the income to the spouse without giving an interest in the property?

[jeffy]

Can the OP give a beneficial interest in the income to the spouse without giving an interest in the property?

I had wondered if something like this may be possible. I.e. - my wife receiving (some of) the income as her benefit? Though I think this may be where I came in at the start...

[maths]

No, due to settlement provisions.

[jeffy]

So, having done a bit more research in to this, I came across the following article here on taxation web:

www.taxationweb.co.uk/tax-articles/prop ... ouses.html

It seems that I could transfer a 1% ownership to my wife through a declaration of trust. By doing so income could then be split 50/50. There's no form 17 to complete or need to notify HMRC. Although this would have an effect on CGT on disposal of the property, it would be minimal as obviously only 1% has been transferred. While this isn't as good as a 1/99 split on income, it's far better for CGT purposes.

Has anyone done this? Does my wife need to be added to the deeds first or can I just crack on with a declaration ation of trust?

TIA?

[maths]

If you are the sole holder of the legal title and you wish to alter the respective % rental income received by you and your wife all you need to do is execute a declaration of trust declaring whatever %s you want be whether that is 99/1; 60/40; 100/0 etc.

No Form 17 is required to be lodged with HMRC.

THe automatic 50/50 rule only applies where the legal title is held by both spouses (not the case here) unless a declaration of trust is executed and Form 17 is filed with HMRC.