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Where Taxpayers and Advisers Meet

Tenants in Common v Declaration of Trust

Posts: 3
Joined: Sat Aug 03, 2019 3:54 pm

Tenants in Common v Declaration of Trust

Postby Satyboy » Thu Aug 15, 2019 11:03 am

Hi, I know there are lots of questions and answers on this topic but just trying to find the right solution for me.

I am married and me and my wife have our own joint home
Before marriage I bought a BTL property which has been rented out for about 10 years, both the property deeds and the mortgage is in my name only. Nothing in the wife's name
Property value is about £250k. Mortgage is Interest Only, and outstanding balance is approx £120k.
I am a high earner, so I pay 40% on all Income on this property. My wife on the other hand, works a few days a month, so very low earner
Understandably, I would like to show majority, if not all of the BTL income as received by her

1st Option
This is what I was planning to do before I started looking into Declaration of Trust.
Ask mortgage company + solicitor to change mortgage deeds / property deeds / land register, etc to include both me and my wife as joint, currently its just me
Ask for Tenants in Common drafted at the same time so that ownership of property is say 99% wife and 1% me. This way I would do a tax return both for me and my wife, but 99% property income showing on wife's return and only 1% on mine.
The mortgage interest payments would also be split in that proportion

2nd Option
This is where maybe you can help
Use a Declaration of Trust to show that my wife is 99% beneficiary of the rental income
So I don't have to change the mortgage deeds, I don't have to change property deeds, etc ?
I don't have to inform HMRC about this change? However, my wife doesn't currently do a tax return, so I will have to say something to them so that they set up her up on their system?
So from the date of the DOT, I can start doing the tax return and include my wife as earning 99% of the income?
Can I still apportion the mortgage interest payments 99%/1%?

Are these actually 2 different options or do I have to do Option 1 and then do Option 2.

Apologies for all the information, but I always think better to have more than less, to be able to make an informed decision

Posts: 107
Joined: Mon Mar 11, 2019 4:22 pm

Re: Tenants in Common v Declaration of Trust

Postby Jholm » Thu Aug 15, 2019 12:13 pm

I will let someone more legally minded respond to the deed element but my brief understanding is that it is possible.

However, HMRC will also treat the income earned as 50/50 regardless of the actual split.... UNLESS you also submit form 17 to them.

See here:

Lee Young
Posts: 2669
Joined: Wed Aug 06, 2008 3:26 pm

Re: Tenants in Common v Declaration of Trust

Postby Lee Young » Thu Aug 15, 2019 4:37 pm

I've always understood that where only one person is legally responsible for the mortgage the mortgage interest (to the extent that it remains tax deductible) is only deductible against that person's share of any joint income. In other words if your wife is not on the mortgage deed she can not deduct any of the mortgage interest from her share of the income. I'm willing to be proved wrong on this :? . Does not mean you cant do what you want, but you need to be a little bit more scientific about the income split to make sure you are not wasting any allowances/deductions.
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner

Partner, Frettens LLP
01202 491701

Posts: 7697
Joined: Wed Aug 06, 2008 3:25 pm

Re: Tenants in Common v Declaration of Trust

Postby maths » Thu Aug 15, 2019 7:41 pm

If the legal title remains in your name only and you simply execute a declaration of trust under which a % of your beneficial interest is transferred to your wife (eg 99%), any interest payable on the mortgage (in your name only) is tax deductible only by you not your wife, as Lee points out.

If the legal title is transferred into joint names and your wife is added to the mortgage then in the absence of a declaration made by both of you regarding the beneficial ownership split you will each be taxed on 50% of any profit. Where a declaration is made (eg 99/1) including an agreement that wife will discharge 99% of the interest charge and also receives 99% of the rental income then she will be able to deduct the 99% (assuming she does discharge this amount herself).

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