Property Tax

[Dev_1]

Good afternoon,

I am in the process of a property transaction which will ultimately mean i become the owner of a buy to let property in my sole name.

I am currently a basic rate tax payer, however by receiving the rental income from the buy to let in the near future it will push me in the higher rate tax bracket.

Having gone through the figures approx £11,600 of this rent total amount ( £22,800) would be taxed at 40% whereas before this would have been taxed at 20%.

I was wondering what would be my options in relation to distributing this income of £11,600 to my wife or mother.

My wife is a basic rate tax payer as so is my mother

I would like to retain ownership of this property and don't plan on selling it anytime soon.

My being pushed into the higher rate tax bracket i would also lose the £1,200 child benefit which we currently get

Options

1:- limited company however I have heard this might not be beneficial to us. Due to lack of number of properties and ongoing associated costs involved.

2:-By me paying my partner a salary/fee for managing my sole newly acquired buy to let and my mother’s buy to let. I have heard that she could register as a lettings management company of some sort and then invoices me and my mother her fees. The reason why we have thought of adding my mother’s property also is because it shows that she is managing another property apart from just mine. My wife will effectively carry out all the admin work for the two properties mine and my mothers. Arranging repairs, dealing with the tenants, drafting tenancy agreements, finding tenants. We would then pay her the fees which are due.

3:- I simply pay mother or partner to carry out the admin work for me in relation to the property owned solely by me. I guess this would be a reasonable and proportionate value which is paid (market pay/fee). They would then declare the income and pay any tax due. I am not sure if I would need to pay national insurance or operate a PAYE or how would this work, and would it be accepted by HMRC?.

4:-Partnership- there is a lot of information out there for this but I simply don’t know enough.

5: - I have heard however got mixed answers if i was to transfer the title of the property to own it as tenants in common with my wife 99% me and wife 1% would we be able to split the rental income from the property 50/50?

Ideally we want to keep matters simple without any big/large ongoing costs associated or overly complicated structures.

Any reply is very much appreciated.

kind regards

[AGoodman]

You could do 5 quite legitimately.

2+3 sound unhelpful given you would need to approximate commercial rates for letting agents or just dodgy if you paid much higher rates ("dodgy" in the sense of HMRC investigating you and imposing penalties).

[Dev_1]

Thank you for your reply.

I was reading my own question back not sure if I put it right.

5: - Would I be able to transfer a 1% of a rental property which is currently in my sole name to partner, and I retain 99% ownership.
If the above is possible then would I be able to split the rental income from this property with my partner?. Would it have to be exactly 50/50 split or could it be say 70/30.

This split would it need to be documented on a declaration of trust and would a form 17 need to be submitted to HMRC?.

I guess the declaration of trust would deal with the beneficial interest of the property and not the rent itself?.

Would there be any stamp duty or CGT arising from this transaction?.

The property is mortgage free.

In relation to option 2-3 if it’s done properly ensuring that there are no favourable higher rates charged along with ensuring that research is conducted into the going rate of letting agents would this work?.

[AGoodman]

On 5: by default, rental income follows beneficial ownership. You would make a declaration of trust setting out that you hold the property as trustee for each of you as to x% for you and y% for her.

As you are married, the spousal default position is to be taxed on 50% of the rental income each. That is probably what you want with a 99:1 split. The only alternative is to file Form 17 which removes this default and instead taxes you on actual shares - i.e. you would need to give your wife the share of the property matching the share of the rent you want her to receive.

No IHT (spouse) CGT (spouse) or SDLT (no payment).

2/3 don't know. You would need to investigate whether you/she needs to register for PAYE/self employment/NI. My main concern is that its a funny letting agency with two properties on ASTs. If it doesn't work there would be knock on effects for child benefit etc.