Help with Deed of Trust keeping tax man happy with the finance and Deposits

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    Help with Deed of Trust keeping tax man happy with the finance and Deposits

    Hi all, Firstly, apologies if answered elsewhere on the site and so many questions in one go.

    First Question -Situation is I am married to my wife and we have our main home and a second home that my wife owned before we got married. We have not done a deed of trust on her old house as had fully owned her and still is. Any issues anyone can see here? The tax man seems happy with this over last 14 years to date.

    Second Question -We are however buying another house to rent out under a Buy to Let mortgage in joint names.
    We will get a Deed of Trust created by solicitor and submit form 17 but unsure on the split we can do. I wanted to give beneficial ownership of 100% to my wife and when I retire would move it back to a 50/50% beneficial ownership. Is there a problem with me giving 100% to my wife from a tax perspective as I see very often people have taken 99%/1% option? I did call the tax office and they said it was ok, but many are recommending I keep 1% and I don’t know why?

    Third question - was to keep things legitimate we was intending that my wife will pay the mortgage payments, Agents fees and collect the rent to and from her account. Is this the best way forward for the tax man viewing the beneficial ownership?

    Fourth question - does the Deposit compromise on the beneficial ownership / Deed of trust percentage we can do? We have savings in join accounts and my name and will pool them together into our joint account for the deposit on the house. Does the tax man ask who paid what proportion of the deposit as part of the Deed of Trust e.g. If we paid 50/50 deposit can we only go 50/50 on the deed of trust?

    Last question - Also is it better to have the full deposit come out of the wife’s account if she will the 99% or 100% Beneficial ownership for the Tax man to be satisfied or does this not matter.

    Kind regards

    Nev M

    #2
    Originally posted by Nev M View Post
    Situation is I am married to my wife
    Good, excellent start point!

    1 - The ownership of the property isn't affected by marriage, so if your wife is letting the property (named as landlord) and gets all the income, that's fine. You can't change the ownership with a declaration of trust unless you're joint owners, anyway.

    2 - You split 99:1 so that you retain some ownership. If you split the ownership 100:1, your wife owns all of the beneficial interest in the property and if you fall out in the future (however unlikely) that would make your life quite complicated. With a 1% stake you retain an interest. So from a tax point of view 100:0 might be OK*, but it's not a great idea otherwise. Also, your lender might not allow it, you'd have a loan secured on nothing.

    You can change the ownership shares by declaration of trust (and form 17) as many times as you like (and can afford the legal fees).

    3 - Expenses are treated in line with the proportion of ownership, so it makes sense to transact everything in her name. But it doesn't really matter - the trust sets out the treatment you wish to follow, the route the money follows or which accounts are used is only something that matters if there's some kind of fraud or you and your wife disagree.

    4 - The declaration of trust deals with the ownership split entirely. It doesn't matter who pays for what share - you're married and are able to arrange your finances how it suits you.

    Last - Doesn't matter.

    Don't forget to sort your wills out, you'll have a lot of property in different ownership and you want it to end up in the right place if a plane lands on both of you at the same time.

    *Don't take tax advice from HMRC, they're nice and helpful, but they don't have your interests at heart.
    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
      Thank you so much jpkeates such a for quick answer and very informative response on all the questions. This really does help me a lot and i am very appreciative to you for it! Thanks so much!!

      Good tip on the will also, thanks again.

      Comment


        #4
        Between you, you and your wife will soon own three properties. I think your level of wealth is such that you need professional advice on what to do with the property you have and are thinking of buying. Only a professional with full details of your current financial position and knowing what you and your wife want to achieve for yourselves (and any children?) can give you proper advice.

        I too am puzzled by this one percent thing. I never came across it in practice. Can someone please explain the reasoning behind it?

        Comment


          #5
          Originally posted by Lawcruncher View Post
          I too am puzzled by this one percent thing. I never came across it in practice. Can someone please explain the reasoning behind it?
          I've never come across any split "greater" than 99:1 (if you see what I mean).

          I've heard (and never questioned it, to be honest) that:
          1 - lenders of a joint mortgage want both lenders to have some beneficial ownership.
          2 - If a joint owner has 0% of the beneficial interest they have problems if the 100% beneficial owner decides to do something with the property with which they disagree (unspecified "something"). So I've assumed (and again, never really questioned) that should the happy couple cease to be happy, the 100% could sell the property over the wishes of the 0% owner.

          But I have nothing to back up either of those assertions, I've just taken it as a given.

          And advising against a split of 100:1 was a daft typo!
          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


            #6
            As to 1: Lenders have many requirements they cannot justify in real property law terms. I cannot see how a lender can be prejudiced if the beneficial owners are not the same as the legal owners. It all comes down to one of the fundamental principles of conveyancing which is that a purchaser (which includes someone providing a mortgage) is not concerned with beneficial interests.

            As to 2: In any non-divorce court case about how to deal with a property an owner with a 1% interest is going to have an uphill struggle of Everest proportions. In divorce proceedings the court can make property adjustment orders.

            Comment


              #7
              I'm certainly not in a position to disagree with either of those points.

              My feeling is that, on 2, in England, joint owners have to agree about what happens or is done with a property (unlike, for example, Scotland, where a majority prevails), so a beneficial owner with 0% interest is in a poorer position than one with 1% interest.

              I'm not precisely sure how the rights arising from title and beneficial ownership are prioritised.
              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


                #8
                Ignoring settled land, before the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) came into force land held in trust (which all jointly owned land is) was held on a trust for sale. That meant that if a joint owner wanted to sell the land had to be sold whatever the other joint owner(s) wanted. After TOLATA came into force the trust for sale became a trust of land and the courts were given discretion as to what orders they could make concerning how the trustees exercise their functions.

                Comment


                  #9
                  I don't see how HMRC could accept a split of 0%/100%. The split is supposed to reflect the true ownership which may be different from the title. How can you say that you are joint owners but 1 person is the real 100% owner?

                  Comment


                    #10
                    You can be "joint owners" because of registration of new owners name to property title records kept at Land Registry.

                    But if the "Joint owners" are Husband and Wife , the Tax Office allows H & W to claim H or W ( person on lower tax rate ) as 100% owner for paying tax.

                    Comment


                      #11
                      Originally posted by Kape65 View Post
                      I don't see how HMRC could accept a split of 0%/100%. The split is supposed to reflect the true ownership which may be different from the title. How can you say that you are joint owners but 1 person is the real 100% owner?
                      It comes down to what you mean by "owner". When it comes to land you have to distinguish between legal and equitable or beneficial ownership. The legal owners are those whose names are on the register at HM Land Registry or who are shown as owners by the title deeds. The equitable owners are those who derive or may in the future derive some benefit from the property.

                      Comment


                        #12
                        If I worked for HMRC I would question how someone could TRULY have a 100% beneficial ownership of a property that isn't reflected on the title deeds. I'm not saying this can't be done and in some cases such as trusts etc I can see the need to do it but in a situation where joint spouses are named on the title deeds yet one is saying that the other is the 100% owner just smacks of tax evasion. How can you suggest that your wife is 100% beneficial owner when you are purchasing jointly with a mortgage? As I said, I know it can be done just get the deed of trust and form 17 and you're rocking but if HMRC ever start paying attention to this form of tax evasion then a lot of people will be stung.

                        Comment


                          #13
                          At very worst, it's tax avoidance, not tax evasion!

                          The basic theory is that a married couple should be able to sort out their finances as they see fit and no one should pay more tax than they have to,

                          The split using a declaration of trust and form 17 isn't something that HMRC aren't paying attention to, it's a process that they are perfectly happy with as it helps them a lot.

                          If the couple were unmarried all that's required is that they agree and are consistent about how they split ownership and income, so it's actually more of a faff for married couples than unmarried couples, and much less hassle for HMRC.

                          A married couple formalises their tax arrangements and confirms them in writing to HMRC.
                          That's hugely more useful, it means that tax is likely to be paid (and can be queried if not) and any changes to the arrangement have to be confirmed.

                          Any other joint ownership of property has none of those positives - in as much as HMRC can be said to have feelings, I'd guess they love this!
                          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


                            #14
                            You asked " Is there a problem with me giving 100% to my wife from a tax perspective as I see very often people have taken 99%/1% option? I did call the tax office and they said it was ok, but many are recommending I keep 1% and I don’t know why?"

                            Keeping the 1% must be what the Mortgage Lenders requires. The Mortgage Lender may want to keep joint names on the loan agreement..

                            Comment


                              #15
                              Originally posted by Kape65 View Post
                              If I worked for HMRC I would question how someone could TRULY have a 100% beneficial ownership of a property that isn't reflected on the title deeds. I'm not saying this can't be done and in some cases such as trusts etc I can see the need to do it but in a situation where joint spouses are named on the title deeds yet one is saying that the other is the 100% owner just smacks of tax evasion. How can you suggest that your wife is 100% beneficial owner when you are purchasing jointly with a mortgage? As I said, I know it can be done just get the deed of trust and form 17 and you're rocking but if HMRC ever start paying attention to this form of tax evasion then a lot of people will be stung.
                              The point is that as soon as more than one person is "on the title deeds" there is a trust. In land law a trust is wider than what may generally be thought of as a trust.

                              Comment

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