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Where Taxpayers and Advisers Meet

Declaration of Trust, SDLT and expense allocation.

robw54
Posts: 8
Joined: Thu Feb 24, 2011 4:46 pm

Declaration of Trust, SDLT and expense allocation.

Postby robw54 » Mon Jun 24, 2019 4:40 pm

We have two properties owned by my wife and myself which are both let (we rent our primary residence).

These we're both jointly owned with mortgage and were transferred from Joint tenants to Tennants in Common at 99/1% in favour of my wife being the lower tax payer. The was done via severing the original tenancy and a declaration of trust and form 17 to HMRC.

The was handled by a local solicitor.

I've recently read somewhere that potentially SDLT might have occured here (due to the mortgages) and if it didn't the apportionning of the expensies (ie interest) - should still be split 50/50 rather than 99/1. Does the income allocation automatically follow the expenses? My accountant thinks so but he's not a property specialist.

Is this correct?

AGoodman
Posts: 857
Joined: Fri May 16, 2014 3:47 pm

Re: Declaration of Trust, SDLT and expense allocation.

Postby AGoodman » Mon Jun 24, 2019 5:51 pm

Yes, SDLT is possible depending on the values. Your wife would be treated as paying

Whether SDLT was payable has nothing to do with the allocation of expenses. It's a separate issue. By the sounds of it, your wife is taxed on 99% of the income, I don't know if she can deduct 99% of the interest or just 50% as you remain jointly liable for the mortgage.

robw54
Posts: 8
Joined: Thu Feb 24, 2011 4:46 pm

Re: Declaration of Trust, SDLT and expense allocation.

Postby robw54 » Tue Jun 25, 2019 8:13 am

Yes, SDLT is possible depending on the values. Your wife would be treated as paying

Whether SDLT was payable has nothing to do with the allocation of expenses. It's a separate issue. By the sounds of it, your wife is taxed on 99% of the income, I don't know if she can deduct 99% of the interest or just 50% as you remain jointly liable for the mortgage.
Thanks for the reply. As you say, you remain jointly liable for the mortgage - but given the form 17 and deed of trust as evidence, along with the SDLT event which is only an event in that "consideration - debt is transferred" in the eyes of HMRC is would seem correct that income and expenses are allocated as such.

I'd not appreciated the SDLT impact but the mortgages are below the threshold. I also believe this rule changed in the 2017 budget when transferring between spouses.

maths
Posts: 7562
Joined: Wed Aug 06, 2008 3:25 pm

Re: Declaration of Trust, SDLT and expense allocation.

Postby maths » Tue Jun 25, 2019 11:15 am

The best approach is to adopt an arm's length basis as the start point. Wife would therefore acquire the 99% beneficial interest thus receiving 99% of the rental income but woulds also be expected to bear 99% of the expenses. However, an alternative arrangement between you/wife may be made re the expense allocation but given the 99/1 split of ownership I'm not sure HMRC would accept other than a 99/1 split re expenses.

As mortgagor you would have a joint and several liability with respect to the interest obligation so if wife paid 99% of expenses she could deduct the whole amount.

Note the amendments to interest deductibility.


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