New to BTL and a Tax Question

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    New to BTL and a Tax Question

    Good afternoon all

    My wife and I are in the process of buying our first BTL. I have a very quick question around tax that I hope someone can help with.

    I am a higher rate tax payer and she currently falls just below the basic rate (part time worker). We haven’t yet purchased the property and I’m keen to ensure we do it correctly to try to get the best out of the situation regarding tax.

    Would we be best off purchasing the property jointly and splitting everything down the middle and accepting that my part of the income will be taxed higher or is there a better way of doing it so that all profits go to her?

    I have no issue at all with it all being in her name if that gives us the best outcome. However I guess my earnings would need to come into the equation to actually get the BTL mortgage in the first place.

    Many thanks in advance
    Ricky

    #2
    You can own the property as joint tenants and use a simple deed of trust (and a form called form 17) to confirm to HMRC that you want the income to be treated as 99:1 in favour of your wife.
    The actual ratio might need to be tweaked to suit your particular circumstances.

    It's a simple process that's bread and butter for a family solicitor (the cost of which is probably an allowable business expense) and would have the desired effect. The title isn't affected and you can cancel the arrangement later - which can help if you decide to sell the property and have a capital gain.

    It's quite a common arrangement and totally fine from a legal and moral point of view, it's not any kind of dodgy tax arrangement.

    The solicitor might also advise if it's better achieved using a trust (because it might benefit your future IHT planning or to assist with your wills) because everyone's circumstances are different.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      You should be aware that accumulation and discretionary trusts pay tax at 45% on annual income above £1000.

      Comment


        #4
        Thank you for the reply. Can I just check that I'm reading correctly that we can still be joint tenants and use a deed of trust to split the income 99/1.

        The form the solicitors have sent me says:
        __________________________________________________ __________________________________________________ ______
        Joint Ownership

        Please ensure that your read the attached leaflet in relation to Joint Ownership. Please confirm how you would like to hold the property.

        Joint Tenants Tenants in Common in Equal Shares Tenants in Common in Unequal Shares

        If you intend to hold the property as Tenants in Common in Unequal Shares we would advise that a Deed of Trust be drafted to demonstrate your contributions to the property.

        Would you like us to prepare a Deed of Trust on your behalf? The cost of a standard Deed of Trust is £200 plus VAT Yes/No
        __________________________________________________ __________________________________________________ ______

        Just checking as they seem to be indicating that we need to go down the unequal shares route. Am I better off just going straight down the joint tenants route for the time being and then just sorting a deed of trust afterwards?

        Comment


          #5
          Solicitors are terrible at inserting commas after their screwed up written english . Your choice is one of the following options :


          (1) Register under "Joint tenants" and you both own 100% of the property ( after death of first tenant , surviving tenant automatically gets all)

          (2) Register as "tenants in common holding equal share" , you both own 50% share which is legally separate and can be willed to other beneficiaries.

          (3) Register as "tenants in common holding unequal shares" , means you both own unequal % share declared at time of registration and each share is legally separate and can be willed to other beneficiaries .

          For option (1) and (2) , the tax office are willing to accept a change of rental profit in favour of wife by submitting a DOT and Form 17.

          For option (3) , both tenants report the rental profit according to their % share owned in the property.



          Comment


            #6
            Thank you so much Gordon. We wanted to go down the route of joint tenants and then split the income in my wife’s favour so that’s perfect.

            Many thanks again.

            Comment


              #7
              Hi - I looked into this myself recently. Have a google for TSEM9846 and TSEM9814. There are some interesting rules for Form 17. If one is submitted it should reflect reality, hence if you elect for a 100%/0% share of the rent then that is how the beneficial ownership of the property and the income should be split. So it may also be advisable to ensure the rental money is not simply paid into a joint bank account that you have immediate access to.

              Comment


                #8
                Further to my recent post, readers may be interested to note that married couples are taxed equally on the property income irrespective of ownership share, unless a Form 17 is submitted. So a couple can own a property 90%/10% but will still be taxed equally if no Form 17 is in effect. Submitting a Form 17 is optional. It is when the couple want to allocate all the income ( or anything other than 50/50 ) that a form 17 should be submitted, together with the Deed of Trust.

                Comment


                  #9
                  Hi Nigel. I’ve made sure that the account that the rent will be paid into is solely in my wife’s name. She’s going to be managing everything so the Form 17 does sound like the correct route for us.

                  Comment

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