Limited Liability Partnership Rental Business -> Transfer rental income to spouse.

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    Limited Liability Partnership Rental Business -> Transfer rental income to spouse.

    Evening All,

    I own a couple of BTL properties in my sole name, and my Wife has no income.

    As i am a higher rate tax payer, It has been suggested to me that it is possible to transfer, via declaration of Trust, a small proportion of the value of my mortgaged properties (below SDLT threshold) to spouse via declaration of trust. We could then form a LLP Property Rental Business. No changes at Land registry or with Mortgage. We could then choose to allocate the profits disproportionately. (Say 90/10 in favour of spouse).

    Obviously accounts would need filing etc., and there is a bit of set up involved.

    Has any one set up an LLP similar to this before? Does this sound like a reasonable plan?

    Thanks


    #2
    If there are no changes to the title at the land registry, SDLT should be academic.

    If what you're describing is the set up of a trust that manages the properties (and can therefore allocate the income as it sees fit), there doesn't seem any point in setting up the LLP, which would have a similar effect.
    Unless the long term goal is to migrate the LLP into a limited company - which has been proposed as a route allowing incorporation without paying CGT.

    This seems considerably more complicated than transferring some ownership of the property to your wife and making a simple declaration of trust to split the ownership differently.
    There's no separate annual tax return for the trust, for example.

    Your mortgage lender may have an issue with the property being used as security for their loan to you being partially owned by someone else.
    Or actually owned by an LLP, even if the title remains in your name.
    So you'd need to check their terms and conditions.
    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 will in any case trigger an immediate Capital Gains Tax event if you go the company route.

      Comment


        #4
        Originally posted by AndrewDod View Post
        You will in any case trigger an immediate Capital Gains Tax event if you go the company route.
        There are a number of companies who believe that if you can get your properties into a partnership, and can show that the partnership is an actual operating business, CGT can be subject to "incorporation relief".

        The basis for this is Ramsay v HMRC (2013), but I have some doubts about whether it would apply more generally.
        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


          #5
          Originally posted by jpkeates View Post

          This seems considerably more complicated than transferring some ownership of the property to your wife and making a simple declaration of trust to split the ownership differently.
          There's no separate annual tax return for the trust, for example.

          As i understand it, if i do a declaration of trust to transfer a small percentage of ownership, then she can only receive a small percentage of the income.

          Are you suggesting something different? Actually transferring some ownership via land registry / mortgage (SDLT?) then declaration of trust to split income differently?

          Thanks

          Comment


            #6
            If you are legally married , you can gift a part of your property to your spouse without liability for capital gains tax.

            But there is liability for paying sdlt because the Tax Office requires sdlt charged on the consideration which is the outstanding mortgage loan.

            So if you gift a small interest in the property including a mortgage loan below £40K ,then your wife is below the starting level for paying 3% sdlt.

            However before you can gift any part of the property, the mortgage lender has to agree and give consent for change from sole name ( 100%) into joint names ( say 90% husband and 10% wife ) .

            After the property is registered in joint names at Land Registry , you can make a Declaration of Trust to change the rental income to 90% wife and husband 10% .

            So before you decide to act, check your proposals with a tax accountant.

            Comment


              #7
              Thanks for the reply.

              I now have an Agreement in principal from the mortgage co to transfer the mortgage into joint names. After i have engaged a solicitor to conduct a transfer of equity, say 10% (which is below the 40K threshold) I assume she is then entitled to 10% of the rent.

              Is it then possible to make a DoT to transfer Beneficial Ownership to my wife, say up to 90% Wife 10 % me without incurring further SDLT charges? I thought that if I did this SDLT would become due on the 90% of the outstanding mortgage balance in this case?

              I did talk to a tax accountant. They suggested SDLT would be due on the DoT Transfer.




              Comment


                #8
                Change your accountant.
                SDLT applies to changes in title, the deed of trust relates to beneficial ownership, which is not an SDLT event.

                I'm very surprised the lender has agreed, normally their terms and conditions would prevent what you're trying to do.
                Look for clauses that don't allow a change of beneficial ownership (it may not be called that), without their consent.
                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


                  #9
                  Thanks for your reply.

                  The agreement from the Mortgage Co is to move the mortgage into joint names, and instruct a solicitor to enact a Transfer of Equity, so that we become Tennants in Common.

                  There do appear to be lots of conflicting statements online regarding SDLT and transfer of beneficial ownership via DoT. This article for example suggests SDLT would be due, due to the fact there is a mortgage on the property.

                  https://www.samconveyancing.co.uk/ne...or-spouse-6041

                  Comment


                    #10
                    If you're transferring property to your wife and they take on the mortgage, that's a change in title with consideration, so it would be an SDLT "event".
                    The consideration is going to be 50% of the new joint mortgage value.

                    The scenario in which SDLT was academic was simply changing the beneficial ownership.

                    You're lucky your lender will consider a joint mortgage application from someone with no income.
                    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

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