Reply to: Buy to Let income - tenants in Common tax advantage query

[illfittin]

thanks guys, particularly Maslin and the HMRC link, much appreciated.

[ASB]

The personal tax dept of the firm I used to work for did this type of thing fairly regularly. I was in the corporate tax dept so I'm probably not spot on with my terminology as I never needed to be, but I am certain what the OP wants to achieve can be done.

Bugger! Think I could have saved myself a couple of grand. Ah well. In my case I was sole owner of the property - for various technical reasons related to the mortgage, so I gifted half of it to my wife and split the income 50/50 as per "usual practice". I wanted her to have 100% of the income (not a great deal) because I was a 40% tax payer and she wasn't. Now if only I could get in my BN66 powered time machine and retropsectively make the declaration....

[Maslins]

OK I see your point. I am checking with one of our techies but preparing to eat humble pie.

The personal tax dept of the firm I used to work for did this type of thing fairly regularly. I was in the corporate tax dept so I'm probably not spot on with my terminology as I never needed to be, but I am certain what the OP wants to achieve can be done.

[THEPUMA]

As joint tenants yes, but doesn't have to be 50:50 if tenants in common as suggested in the OP.



This is what I am saying, with the added element that the deed of trust can effectively make it so "actual ownership" is different for income and for gains.

OK I see your point. I am checking with one of our techies but preparing to eat humble pie.

[Maslins]

By default the income arising from property held jointly by husband and wife is split 50:50 for tax purposes.

As joint tenants yes, but doesn't have to be 50:50 if tenants in common as suggested in the OP.

If the property is held unequally and the husband and wife wish it to be taxed based upon actual ownership, they can use form 17 to apply for this to be the case.

This is what I am saying, with the added element that the deed of trust can effectively make it so "actual ownership" is different for income and for gains.

[THEPUMA]

The declaration of trust can be setup to effectively split income and gains differently. The form 17 must agree to the income split, which is what is intended. The gains split can be 50:50 without the income split also needing to be that way.

I disagree.

By default the income arising from property held jointly by husband and wife is split 50:50 for tax purposes.

If the property is held unequally and the husband and wife wish it to be taxed based upon actual ownership, they can use form 17 to apply for this to be the case.

Form 17 does not apply in any other circumstances. Therefore, in no other circumstances can the income be taxed other than 50:50.

[Maslins]

I agree but that is not what you originally suggested.

The declaration of trust can be setup to effectively split income and gains differently. The form 17 must agree to the income split, which is what is intended. The gains split can be 50:50 without the income split also needing to be that way.

[THEPUMA]

Agreed, but the property has not yet been purchased, therefore it does not need to be acquired 50:50.

I agree but that is not what you originally suggested.

Many people do what you suggest. No reason why you can't make it 99:1. You can also do this whilst still retaining a 50:50 split for CGT purposes (thus both gaining your ~£10k annual exemption).

[Maslins]

That form would not apply in the circumstances you describe. It can be used to enable you to be taxed on actual ownership proportions but not to enable you to be taxed 99:1 when you own the property 50:50.

Agreed, but the property has not yet been purchased, therefore it does not need to be acquired 50:50.

[THEPUMA]

Your solicitor should be able to do a declaration of trust to split the income arising from the asset, and capital into different percentages.

Then fill in HMRC form 17.

That form would not apply in the circumstances you describe. It can be used to enable you to be taxed on actual ownership proportions but not to enable you to be taxed 99:1 when you own the property 50:50.

[Maslins]

Your solicitor should be able to do a declaration of trust to split the income arising from the asset, and capital into different percentages.

Then fill in HMRC form 17.

[ASB]

Thanks - I am just wondering about when there is no mortgage in place. Will look for this schedule A booklet mentioned above now.....

If anyone knows about how you adjust the %ownership stakes aswell that would be useful. (say if we want a 90/10 split now but move it more equal later in life).

You can do it very simply by gifting it. Best to do it via a deed of trust. This does not involve land registry fees and doesn't have to be registered at the registry (I think). In any event there can always be implications, at the very least it's a gift with reservation so don't peg out within 7 years (though if you do it may or may not make any difference depending upon who the recipient is and where you are married to them at the time).

As THEPUMA says the rules for splitting the profit seem to be either joint shares or shares based on ownership. BUT the other part could of course charge for the work they do (and declare it on their tax return) in administering the tenancy etc - getting a little close to the wind though.

[DimPrawn]

Thanks - I am just wondering about when there is no mortgage in place. Will look for this schedule A booklet mentioned above now.....

If anyone knows about how you adjust the %ownership stakes aswell that would be useful. (say if we want a 90/10 split now but move it more equal later in life).

What sort of % return are you looking at based on 80% occupancy at market rates vs the capital?

Do you honestly think house prices are going upwards from here to make it a better bet than other investments?

[THEPUMA]

Bear in mind that even if ownership is 90:10, the income will be taxed 50:50 by default as you are married, unless you elect for it to be taxed on the actual ownership proportions. To do so, you would need to prepare a formal election.

I may be being slow but I'm not sure how Maslins is suggesting you retain 50:50 ownership but split income 90:10, unless you pay your wife a salary for administering the property. This would probably work but if the amounts are large, the NI cost may outweigh the benefit. Maslins, can you elaborate? I am probably being thick.

[Maslins]

Many people do what you suggest. No reason why you can't make it 99:1. You can also do this whilst still retaining a 50:50 split for CGT purposes (thus both gaining your ~£10k annual exemption).

You need to ensure the paperwork is done right for this. Presumably you have a solicitor appointed to deal with the purchase? Discuss it with them, as getting the paperwork right is more for legal experts than accountants.