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

  • jpkeates
    replied
    No solicitor wouldn't create a deed of trust to enable tax evasion (the fees they get aren't high enough to risk being disbarred!)

    Leave a comment:


  • Nev M
    replied
    Thanks JP, that sets my mind at rest a little more. Much Appreciated!

    Leave a comment:


  • jpkeates
    replied
    Using a deed of trust and form 17 notification to HMRC are routine and HMRC are completely OK about these arrangements.

    They're almost always used where one spouse is a higher rate tax payer and the other isn't.
    That's the point.
    They're completely legal, legitimate and not at all controversial.

    The only people who might have an issue is your mortgage lender (but probably not).
    They would have a much bigger issue if you try and switch to limited company ownership.

    Leave a comment:


  • Nev M
    replied
    Some very interesting and views on this from both ends of the spectrum. Also, legally I am not getting much of a clearer answer to be honest. I think the safest bet at this point is 99% to 1% as majority here are for familiar with this including my agent.

    For the record I am doing the deed of trust clearly to avoid tax (not evade it) because I am a 40% taxpayer and my wife as a 20% taxpayer will pay less. Our combine wages for a couple if shared equally would put us both firmly in 20% tax bracket, alas we can't share the tax codes between us.
    If purchased and paying 40% tax then it would force the profit too low to be viable long term investment.

    There seemed to be a legally way to do this through the DOT and form 17 but as many here have also commented on too, I also worry about what the position would be later if the tax office decided to look at it and say I had very clearly bought the property with our join savings and adjusted the deed of trust for tax reasons. They could also view the land registry and say that shows also 50/50. I would just have to put my hands up and say yes that’s exactly what I did. Much in the same way I would pay enough to my Pension to come below the 40% tax threshold to avoid tax.

    When i called the Tax office they went away to check and called me back and clearly said its fine just fill in the forms with the DOT attached but who knows what they may say later as I also can see the argument that can be used to say I was avoiding tax using this form.

    I mentioned to the conveyancer also that I wanted a deed of trust on completion and they said its fine they will just register it with the land registry as this also when we buy the house and then this gave me pause for thought too as was unsure if that would cause issues as well. My understanding was the land registry could remain 50/50 and the DOT can still be valid at 99/1% for the tax office of the beneficial interest.

    Eventually I asked the conveyancer to just do Land Registery as normal 50/50 split and the days after completion we would just do a deed of trust 99/1%. Unsure here also if I am right or wrong. The deal is not yet done so I can still change my mind, but we are at mortgage accepted and surveys done, and only searches left to do.

    Gordon999. I can transfer the monies from our saving and join accounts to my wife’s personal account but of course if the money trail is followed it will show coming from both of us also. In reality the money going into buying it is from my earnings but personally I see this our money as we are married.

    Ref the mortgage company I will be on it and liable what ever happens as i have signed a contract jointly to be so regardless of other arrangement I would assume.

    Am being a bit silly here and maybe should do this as a limited company. Was trying to avoid the set up and accountancy fees and load managing as a company maybe is a better option? Not sure the mortgage company offer that option I am with though, will have to check.

    Leave a comment:


  • Claymore
    replied
    Originally posted by Kape65 View Post

    Interesting. Would you elaborate as to how and why? In the OP's case it is clearly tax avoidance and if I were to do it myself it would be tax avoidance. I agree with jpkeates that it is not evasion.
    Sorry, missed this post.

    My name wasn't on the Mortgage or Title deeds because I wasn't working at the time. I financed the whole property etc. DOT put in place to protect my investment and I declared all the income and paid taxes etc. I understand, had the mortgage provider known about the DOT, they might not have been happy. Looking back with hindsight, I am so glad the DOT was in place.

    Leave a comment:


  • leaseholder64
    replied
    I think I was confusing this thread with the person who wanted to reduce the mortgage temporarily, just to avoid SDLT.

    Leave a comment:


  • Gordon999
    replied
    Nev M ,

    Ref : Your Last Question

    I think it may be better for deposit to come from wife's account. Not so much to satisfy the Tax Office but to satisfy the conveyancing solicitor when your wife comes to sell. The conveyancing solicitor may ask the seller about the source of funds for purchase.

    Leave a comment:


  • jpkeates
    replied
    Tax avoidance isn't criminal but does have a bit of a moral "stink" to it.

    And this isn't really anything other than completely normal and fair, so perhaps even calling it tax avoidance is a bit strong.
    Playing by the rules might be more reasonable.

    A declaration of trust for a married couple is 100% OK and there'd be uproar if HMRC tried to change it (never mind backdate a change).
    It would affect lots of MPs for a start!

    You're even allowed to change the split just before you sell to use both people's CGT allowance - and no one will bat an eyelid.

    Leave a comment:


  • leaseholder64
    replied
    If it reduces tax and isn't evasion, it pretty much has to be avoidance.

    I suspect a moral judgement was being made here, and therefore there is no formal definition of where the boundary between normal tax and avoidance occurs. The other judgement here is as to what HMRC might want to legislate against in future, and what they might see as indicating a mindset that would also lead to evasion.

    I'm not guaranteeing that it isn't evasion, as HMRC do seem to have powers to look at the intent of related transactions, and treat them as though they had been a single transaction, if they were only separated for tax reasons.

    Leave a comment:


  • Kape65
    replied
    Originally posted by Claymore View Post

    I was never on the title deeds of one property but I was beneficial owner 100%. Had a DOT drawn up to that effect and subsequently declared 100% income etc etc. It does happen. Its not Tax Evasion or Tax Avoidance either.
    Interesting. Would you elaborate as to how and why? In the OP's case it is clearly tax avoidance and if I were to do it myself it would be tax avoidance. I agree with jpkeates that it is not evasion.

    Leave a comment:


  • Claymore
    replied
    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.
    I was never on the title deeds of one property but I was beneficial owner 100%. Had a DOT drawn up to that effect and subsequently declared 100% income etc etc. It does happen. Its not Tax Evasion or Tax Avoidance either.

    Leave a comment:


  • Lawcruncher
    replied
    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.

    Leave a comment:


  • Gordon999
    replied
    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..

    Leave a comment:


  • jpkeates
    replied
    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!

    Leave a comment:

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