Remortgage of property - change of ownership

[mhuk01]

I currently own 2 BTL properties in my name, and one is up for remortgage in November, therefore I am investigating the following:

I incur student loan repayments due to my work earnings plus the BTL taking me over the repayment threshold (which is around 26k) to approx 40k per year.

I would like to minimise this tax liability by transferring the property up for remortgage into joint name with my wife, so she can have a proportion of the income taxed in her name, therefore reducing my overall income and meaning I pay less in student loan interest.

What is the best way to go about this? I realise there may be CGT implications further down the line also. It would be great to understand how this is affected.

My main questions:

- should I remortgage adding my wife to the mortgage, and would I need to also submit some kind of land registry document?

- would the rental income of this property default to being 50 percent tax liability each, or could it be any percentage we would like it to be?

- The BTL property has been in my name for 8 years. Do I need to inform HMRC that my personal tax liability has dropped due to now being owned jointly?

Thanks for your help!

[someone]

Remortgage into joint names: You will need a solicitor to do this although the mortgage company might provide one if you're remortgaging. Because there's a mortgage involved the mortgage company will not allow you to DIY it.

The solicitors will (should) advise your wife to take independent legal advice. There is no need to do this but taking on a mortgage and a share of a BTL do incur some legal responsibilities that can (and will) be enforced.

Yes, there are land registry documents that must be submitted but the solicitors will do that.

I don't think there's any effects on CGT any more. There used to be (potentially) but now I think the acquiring spouse just inherits the history of the other spouse.


As you are already remortgaging, doing a "transfer of equity" and using the mortgage company's solicitor to do the paperwork, is probably the cheapest and simplest option. And in that case your wife will become joint legal owner and so the default 50/50 split of income will apply regardless of the amount transferred (unless you submit a form 17 to HMRC after the transfer).

There is an alternative of doing a declaration of trust to transfer a beneficial interest. This can be DIYd but a) may be in contravention of your mortgage terms although in practice they won't care unless/until you default on the mortgage payment or get divorced and your wife sues you for her share of the house and b) will require you to register the trust with HMRC as it's not an excluded trust. Also, in this case you must transfer the share that matches the income split, there is no deemed 50/50 rule unless the legal ownership is joint.

Depending on the size of the mortgage there might be SDLT - the share of the (original outstanding amount if you're remortgaging for a different amount) mortgage that your wife acquires based on her ownership proportion will be deemed consideration. But because of that 50/50 default deemed income share, even if you have a huge mortgage you can avoid this by transferring a very small share to your wife - even a 1M mortgage will only be a 10K consideration for a 1% transfer of equity but still get 50/50 income split provided you don't send form 17 to HMRC.

No, you don't need to tell HMRC about the change in income split. Obviously, if your wife doesn't already do a tax return then she needs to tell HMRC that she has a new taxable income and (probably) needs to do one. If you're making payments on account then you might want to get them reduced - then you will need to tell HMRC but if you do a tax return each year anyway then it will all sort itself out once you do the next one and reducing the payments on account is a cashflow thing only.


On your last question - for a married couple the only two possible income shares are 50/50 (if it's (legally) jointly owned) or in the proportion of ownership. The only complication is when both are true, if it's jointly legally owned and the actual ownership is not 50/50 then to have the income taxed to match the proportion of ownership requires you to send form17 to HMRC along with appropriate documentation on the ownership proportions.

[mhuk01]

Thanks for the detailed reply.

I think the main consideration is going to be knowing what the one-off costs to do this are (solicitor and stamp duty fees)

I've had a call with my mortgage broker (yes I know, not a tax advisor but good for some free advice!!) and he reckons it'll be around £400 solicitor fees and £1350 Stamp duty. The stamp duty figure he came to is 50% of remaining mortgage (50% of £90,000) x 3% 2nd home stamp duty surcharge = £1350.

Does this sound about right?

[someone]

Are you married/civil partnership?

In which case the higher rate SDLT doesn't apply.

https://www.legislation.gov.uk/ukpga/2003/14/schedule/4ZA

9A(1)A chargeable transaction is not a higher rates transaction for the purposes of paragraph 1 if—
(a)there is only one purchaser,

(b)there is only one vendor, and

(c)on the effective date of the transaction the two of them are—

(i)married to, or civil partners of, each other, and

(ii)living together (see paragraph 9(3)).

[mhuk01]

Married. However doesn't the second home SDLT charge apply?

[someone]

No. That paragraph 9A I posted explicitly says that if you are married (and not separated) and one of you is transferring to the other and nobody else is acquiring or disposing of a share then it's not a higher rates transaction.