Adding wife to BTL property

[ringzer]

In 2005 I bought a BTL property in London with an outstanding mortgage of ~£150,000 and a current market value of ~ £500,000. The apartment has never been lived in by me and my name alone is on the title deeds and mortgage.

I would like to add my wife to the property, either 1) title and mortgage or 2) title only. We already own our primary residence together since 2012 which is unencumbered.

I have spoken with my bank and they are happy to add her subject to a standard application and some legal work.

I would like to get some clarification on the Stamp Duty Land Tax applicable in the event of adding her to the deeds and mortgage.

I have spoken to an accountant and a number of solicitors/conveyancers about the transaction and specifically whether or not there is a SDLT liability.

With option 1, as the mortgage is ~£150,000 the "consideration" would be £75,000 as I am transferring half of the mortgage into her name. Therefore SDLT would apply to this. Ordinarily this would be below the threshold of £125,000 but believe as this would be an additional property, 3% would apply.

With option 2, what would the consideration be? Half of market value?

I have spoken to about 4 solicitors and only 1 has flagged that SDLT is likely payable as we already own a property together.

[Edit]
After posting this I have done further research which suggests SDLT isn't payable even if we own one property already: https://www.gov.uk/hmrc-internal-man...ual/sdltm09820

Is my assessment of option 1 with 3% liable correct? Is option 2 any better?

Assuming this is correct and I proceed with adding my wife, the obvious benefits are in the event of a sale as there would be an additional £11,700 CGT allowance as it would be in joint names. However the costs associated with option 1 or 2 are likely a little under £1,000 so the total outlay would be more than £3,000 which is quite a lot.

If I have my calculations correct, the additional CGT allowance as we are both higher rate tax payers would save us ~£3,200 in tax, so a net difference of zero between keeping it in my name and putting it in joint names.

Also, if it was held in joint names, how would we complete our self assessment? Is it typical to share the income and expenditure between the parties, assuming similar levels of personal income?

Thank you in advance

[jpkeates]

You can transfer a small part of the property to your wife, not necessarily half.
That can minimise the SDLT (or remove it altogether).

Then you use a deed of trust to adjust the beneficial ownership to the desired percentage (notified to HMRC using Form 17).

It's something the solicitors should be suggesting.

[Kape65]

You can transfer a small part of the property to your wife, not necessarily half.
That can minimise the SDLT (or remove it altogether).

This intrigues me, how do you transfer a small part of title? I know you can split beneficial ownership of jointly held property but how do you transfer a small part of title prior to changing beneficial ownership.

I'm not sure your mortgage company will allow a transfer of title only, I suspect they will insist on her being added to mortgage.

[jpkeates]

This intrigues me, how do you transfer a small part of title? I know you can split beneficial ownership of jointly held property but how do you transfer a small part of title prior to changing beneficial ownership.

Tenants in common - which allows each person to own a defined share of a property.
You can transfer 1% of a property to someone (at the value of 1% of the total property value at the time).

Totally agree about the mortgage lender.

[Gordon999]

Option 2 is not available because you have a mortgage loan ( in sole name ) secured by the mortgage lender taking a charge on the property title. This means any change to the property title requires consent by the mortgage lender.

You can transfer by gifting a 25% share in the property to wife and the consideration will be taken as 25% of £150K mortgage = £37,500 which is below the starting level for paying sdlt. There is no sdlt to pay if consideration is below £40K .

Your solicitor will arrange for the property title to be registered at Land Registry as "Tenants-in-Common" ( you 75% and wife 25% interest ).

After the registration at Land Registry has been done, you and your wife will each submit separate tax return to report 75% and 25 % of the rental income and expenses

[Kape65]

Your solicitor will arrange for the property title to be registered at Land Registry as "Tenants-in-Common" ( you 75% and wife 25% interest ).

Is this possible (genuine question)? I understand the tenants in common bit but I thought you then needed a declaration of trust in order to change the proportions.

[Gordon999]

I think the solicitor may arrange a sale contract of 25% share in property from H ( seller ) to W ( Buyer ) at Nil price . but the Tax Office will say the consideration is 25% of mortgage loan for calculation the sdlt to pay.

After the property is registered under the names of H&W ( 75% & 25% ) , then a DOT can be used to change the beneficial interest to say 1% and 99% if all the rental income goes to wife.

[jpkeates]

Is this possible (genuine question)? I understand the tenants in common bit but I thought you then needed a declaration of trust in order to change the proportions.

Where property is owned as tenancy in common, the default presumption is that each tenant owns the property in equal proportions.
But that doesn't have to be the case, the ownership can be shared in specified proportions, so 1% and 99%, or 60%:40% are possible.

That split would normally be applicable for tax purposes (each person would pay SDLT on their share of the purchase cost, have income at the same proportion of the rent, pay business expenses proportionately and be taxed on any gain at the same proportion.)

It's also possible to change that percentage of beneficial ownership by deed and form 17.
And if the purpose of the trust ends, the shares revert back to proportions defined in the tenancy in common.

There are other effects of a tenany in common (it's a real split and title doesn't always pass automatically to the other tenant, as it does in a joint tenancy), so you should take legal advice and make sure other provisions like wills reflect the ownership changes.

[Kape65]

I think the solicitor may arrange a sale contract of 25% share in property from H ( seller ) to W ( Buyer ) at Nil price . but the Tax Office will say the consideration is 25% of mortgage loan for calculation the sdlt to pay.

After the property is registered under the names of H&W ( 75% & 25% ) , then a DOT can be used to change the beneficial interest to say 1% and 99% if all the rental income goes to wife.

I always believed that a DOT was used because normal ownership of tenant in common property was automatically registered as 50/50 split when the true ownership may have been different i.e wife has put more money in or such. Surely to transfer a percentage to your wife and then use a DOT to claim that she is entitled to a higher percentage is fraudulent, could HMRC not claim that you should have transferred the correct percentage to her in the first place?

[jpkeates]

Beneficial ownership is a can of worms and HMRC aren't in any position to dispute what a married couple assert to be how they want to split the beneficial ownership, regardless of title.

Someone posted on here a while back, and I made pretty much the same point (which was that the deed was to overcome the presumption of 50:50 in a joint tenancy and that it wasn't possible to give 1% to his wife and then vary it by deed).

He took professional advice and I was shown to be wrong.

[Kape65]

You're right, I remember that post. I agree that it's possible to do it but I feel if HMRC did take the time to view it then it could be classed as fraudulent, evading stamp duty and income tax.

[ringzer]

Thank you to everyone who has responded so far and I will try and address the points raised:

I'm not sure your mortgage company will allow a transfer of title only, I suspect they will insist on her being added to mortgage.

Option 2 is not available because you have a mortgage loan ( in sole name ) secured by the mortgage lender taking a charge on the property title. This means any change to the property title requires consent by the mortgage lender.

I can add my wife to the deeds only as per this question in the mortgage application to change the details:

Mortgage.png
So this would allow me proceed with option 2 - put my wife on the deeds only. I have spoken with a solicitor and bank about this also and they said my wife would need to get independent legal advice on being on the deeds but not on the mortgage i.e. if I defaulted my wife could still lose her 50% of the property.

Deed of Trust, tenants in common seems to be a bit more complicated and it isn't required that I add my wife onto the mortgage other than wishing to put all property in joint names if possible while avoiding any significant cost.

To summarise my outstanding questions

Option 1: - put wife on deeds and mortgage

1. Is stamp duty of 3% payable on the £75,000 consideration because we already own 1 property together, meaning we don't get a first time buyer exemption?

Option 2 - put wife on deeds only, mortgage remains in my name

1. Would there be any SDLT payable in this case as the consideration is £0?
2. Would the additional Capital Gains Tax Allowance apply without issue when it comes to selling it?

Either situation:

1. Transfer costs aside and our wish to put all our properties in joint names, is the CGT allowance the only benefit to putting this in her name also?
2. Is the net saving of having 2 CGT allowances, rather than just 1 equal to £11,700 X 28% = £3276? i.e. I would save £3,276 when coming to sell the property?

Thank you in advance.

[jpkeates]

Option 2
If your wife isn't on the mortgage, the transfer is a gift and there's no consideration and no SDLT.
The gain from the point of transfer would be split.

If there's no saving of income tax, there's no saving other than the CGT allowance (assuming there aren't any changes in the tax regime before then).

If you become joint tenants (and your lender allows that, which I still find odd) in the event of one of you dying, the other would inherit automatically.

[Kape65]

I don't seem to be able to view the image re option 1. I'm keen to know if it is possible to split ownership with wife without adding her to the mortgage.

[Kape65]

Okay I can see the image now, however that is just asking how ownership is changing, it doesn't say they will allow it!