Spouse Tax Free Allowance and Rental Property

[Rob london]

First of all, apologies: it's a common question but I'm still confused. I have a pension income above the tax free threshold; I also have a rental property that was my main home for many years before being rented out for the last 4. There is no mortgage. My partner (we're not married) will have no income in the next tax year. However, she will be buying a home for both of us to live in, which will exceed the value of my rental flat. Ideally we want her to receive at least 13,500 of the rental income (being the tax free allowance plus 1,000 rental allowance). I think we can declare her as a beneficial owner and use form 17 to give her 90% of the income. I've read about 'declaration of trust' but not sure if we need this also. I believe there is no SDLT payable if we do this; I'm not sure about the CGT position.

Am I correct in my analysis? Do we need to be married or in a Civil Partnership to do so? Is it possible to change the amount of beneficial ownership in future if necessary? Is there any other suggestion for how we might utilise her tax free allowance given our circumstances? Advice very much appreciated.

[bd6759]

Form 17 is for married couples, so is unnecessary for you.

A declaration of trust is a statement from you that the property title is held in your name in trust for the benefit of <whoever>. That effectively says who the beneficial owner or owners are. For example, you might say you hold the title for the benefit of yourself and your partner and state what proportion each owns. Although relatively straightforward, you should get a solicitor to help with it.

As an unmarried couple, you can agree between yourselves how much profit is allocated to each person (although such agreement should be made before the start of the tax year). It does not need to follow your percentage of ownership.

If you give any portion of your property away, that is a disposal for CGT purposes.

Your partner should buy the home before you give her a share of the rental property otherwise the higher rate of SDLT will be payable.

[Rob london]

Thank you so much for the response. It shows we can organise this without resorting to a Civil partnership. It also helps to know we can differentiate the percentage of ownership from the percentage of rental income, if I've understood properly.

[Rob london]

Further to my question: is beneficial ownership reversible\changeable at any point? Would reversing the beneficial ownership result in a disposal and a CGT charge? Would it entail any greater charge than if I dispose it entirely myself? Would getting married help\hinder any of this? I will be taking legal advice but grateful for any advice here.

[bd6759]

Once you have given away an asset, you have no further say over it. You certainly can’t reverse it or get it back. You can give more away if you want.

You partner who owns it can do what they want with it. It they give it back to you, that would be a disposal by them.

If you are given it back, HMRC may wonder if you really did give anything away in the first place.

[Rob london]

Once again I am indebted to you. Thanks.