Tax on Buy To Let - Complicated Problem!!!

[benben5555]

Hi All,

Came accross this forum and seems to be the place to solve my tax issues...

I'm buying a buy-to-let flat and want to minimise the tax I have to pay. My plan is as follows:

~ Buy the flat as tenants in common - How do you actually register the fact that you are tenants in common and the percentages you own? Do I need to tell anyone at the time of purchase or do I just send of the Form17 after?
~ I'll own 1% and my wife will own 99%. Then we just pay tax on those percentages (I'm a higher rate tax payer and she isn't).
~ When we come to sell the flat we will change the percentage share to 50/50 and utilise both of our CGT allowances. But how do you actually go about doing this and are there any costs involved?

You help is much appreciated.

Ben

[kingcook]

Try http://forums.landlorduk.com/

[captainham]

Hi All,

Came accross this forum and seems to be the place to solve my tax issues...

A forum for contractors to discuss issues/matters related to contracting, to help you with tax issues on a buy-to-let?

Try an accountant...

[northernladuk]

There is this

Impact on Capital Gains Tax (CGT)
Whenever an asset is jointly owned, the
owners have each of their individual CGT
exempt amounts available to them. The
exempt amount can be used to reduce the
overall taxable gain and indeed, the tax bill.
For 2012-13 tax year the annual exempt
amount is £10,600 per person. Property
investors under both Tenancy in Common and
Joint Tenancy agreements can protect up to
£21,200 of gains from tax where two persons
jointly own the property.
The advantage under Tenancy in Common
again is that CGT can be attributed more
towards the owner with a lower marginal CGT
rate. The amount of CGT you pay depends on
the tax bracket you fall under. For basic rate
tax payers the CGT rate is 18%. For higher rate
tax payers the CGT rate is 28%. It would make
good tax sense to attribute gains to the lower
rate tax payer.
As with income tax, the benefit of opting for
Tenancy in Common really is dependent on
the level of income each owner has. If both
the owners are higher-rate tax payers then
understandably, there is no specific advantage
of opting for a Tenancy in Common versus
Joint Tenancy, as you will end up paying 28%
CGT under both.

Here http://www.gp-ca.com/insights/doc/52...rtiesMay12.pdf

and

Hi Sand,
I am a landlord not a solicitor or an accountant .... here is my understanding of the situation.

"Tenants in common" rather than "Joint tenants" indicates that the ownership of the property is NOT 50 / 50. If you do not buy the property / register the property as Tenants in common then it will be deemed (by HMRC) that you own the property 50 / 50 and all income and expenditure is therefore shared 50 / 50.

The mortgage needs to be in joint names because you will jointly own the property (albeit not in equal shares - but that is all irrelevant when applying for the mortgage).

The purpose of "Tenants in common" and the subsequent "deed of trust" is to ACCURATELY reflect the actual ownership situation relating to the property. In other words - it is not meant to be used as a Tax Avoidance tool and cannot be applied retrospectively ... and HMRC also take dim view of the deed of trust being varied (to avoid tax).

So, register tenants in common, create a deed of trust and then complete the HMRC form (I think it is Form 17) declaring that the property is owned on a 99% / 1% basis. When you complete your annual self assessment returns your need to share income and expenditure according to the 99 / 1 split and you need to TICK THE BOX that asks "Do you have income from property owned jointly with someone else".

It is my understanding that a 99 / 1 split will not affect your individual CGT allowances when you come to sell the property - but I am still trying to get clarity on this (from my accountant) because, in your scenario, technically one of you will only own 1% of the property gain ... so I think that only 1% of the capital gain could be offset against your CGT allowance ... but I would be interested to hear what other forum members think about this point.

Hope that helps ....

Mark

[northernladuk]

Same question has been asked here and a few of our accountants that post here responded...

http://forums.contractoruk.com/accou...age-query.html

Not bad for 5 mins research. Bearing in mind you are buying the house maybe time you did some hey?

[benben5555]

Thanks for your help, one last point I want to clarify...

"It is my understanding that a 99 / 1 split will not affect your individual CGT allowances when you come to sell the property - but I am still trying to get clarity on this (from my accountant) because, in your scenario, technically one of you will only own 1% of the property gain ... so I think that only 1% of the capital gain could be offset against your CGT allowance ... but I would be interested to hear what other forum members think about this point."

I think the above is correct, but can you simply just change the percentage owned just before you sell to 50/50? And how do you actually go about changing the percentages owned?

[northernladuk]

Thanks for your help, one last point I want to clarify...

"It is my understanding that a 99 / 1 split will not affect your individual CGT allowances when you come to sell the property - but I am still trying to get clarity on this (from my accountant) because, in your scenario, technically one of you will only own 1% of the property gain ... so I think that only 1% of the capital gain could be offset against your CGT allowance ... but I would be interested to hear what other forum members think about this point."

I think the above is correct, but can you simply just change the percentage owned just before you sell to 50/50? And how do you actually go about changing the percentages owned?

But that is where tax avoidance comes in. Talk to an accountant or solicitor.

[captainham]

Thanks for your help, one last point I want to clarify...

"It is my understanding that a 99 / 1 split will not affect your individual CGT allowances when you come to sell the property - but I am still trying to get clarity on this (from my accountant) because, in your scenario, technically one of you will only own 1% of the property gain ... so I think that only 1% of the capital gain could be offset against your CGT allowance ... but I would be interested to hear what other forum members think about this point."

I think the above is correct, but can you simply just change the percentage owned just before you sell to 50/50? And how do you actually go about changing the percentages owned?

I've highlighted the most important part of that quote for you.

[captainham]

Try asking HMRC directly. I'm sure they'd love to know what you're planning!

[benben5555]

Thanks all, I can see you have really enjoyed helping me with my issue!

Don't worry, I won't bother you again.

Funny though how you contractors are quite willing to maximise your earnings, but look down dimly at me for minimising the tax I pay even though my tax bill is still higher than a lot of peoples actual salaries.