Advice on Letting a Property, Owned as TIC, jointly mortgaged, split income

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    Advice on Letting a Property, Owned as TIC, jointly mortgaged, split income

    Hi, just looking for advice.

    Me and my partner (currently not married) own a property (jointly, mortgaged) with an outstanding balance of 170k (value is approx 250k),
    We are looking to rent the property out due to work reasons. Halifax have allowed this for an unlimited period of time under a residential mortgage.
    Ownership is in Tenants in Common (60/40) but we do not have deed of trust in place.
    We are due to get married in the near term (as soon as COV19 restrictions are lifted).
    I will be working in my new job for 3 years, she will be taking a break and having no income.

    What is the best way to declare the rental income in her name (99 share) and 1 in my share? Do I need to get a deed/declaration of trust sent to the LR stating 99/1 split, along with F 17?
    After 3 years, we will be moving back to the UK and will therefore need to change this to a different share (50/50) - I guess we just get a new DoT set up?

    Thanks for your help


    #2
    Well you do probably have a deed of Trust in effect. When you say the ratio is 60/40 presumably that is what was declared on the TR1 form and this sort of thing properly signed is an alternative to the same for a TiC. I think you only really need a separate deed if you are including other things (like provisions for sale if there is a dispute, and other agreements). It is probably signed as a deed.

    You are in a better position than a married couple in a way. You can just agree between you to split the income and expenses it in any way you like (but income and expenses in the same ratio).

    Form 17 does not apply to you. That is only for married couples.

    Once you are married taxation will be 50:50 until the Form 17 (no matter what the Deed of Trust says).

    Comment


      #3
      Andrew, thanks for your reply.

      Yes, on the TR1 form, it stated a split of 60/40.

      We will only begin to earn rental income when we are married so taxation will be 50:50, but we would like this altered into a 99/1 split. We are both on the mortgage, both own the house, it's just we want to be as tax efficient as possible. Does creating a DoT trigger SDLT?

      Comment


        #4
        If you look at the form (possibly retained by your solicitor) you will probably see it is similar to what a simple deed of trust would do - signed by an independent witness etc?

        Everything changes when you marry -- but yes a new deed of trust can trigger a SDLT event, and a CGT event (but not if you have lived there most of the time you owned it). Gifts between spouses is not a CGT event. But the mortgage complicates the SDLT (there is no SDLT on pure gifts, but a gifts of a mortgage is not such a gift).

        I would wait until you are married, then get a new Deed of Trust - that might trigger a bit of SDLT (given the mortgage) but not CGT. Then do the Form 17. But be aware that she will actually OWN 99% - there is no way around that in a married situation. If you get divorced 6 months later she will walk away with the whole thing. If you die, the asset will not be in your estate (apart from 1% of it).

        Your mortgage company would also have to be on board with your then spouse owning 99% of an asset and having no income. They will probably politely decline. The Form 17 has to be based on ACTUAL beneficial ownership.

        Comment


          #5
          Can I also point out that being a landlord is highly tricky, expensive, potentially very dangerous and not generally profitable right now. Doing that as an overseas landlord is especially problematical. Do you definitely have to move back into the place in 3 years when you return (bearing in mind that you might not be able to do that, and also bewaring in mind that given the political landscape you might not ever be able to do that in a feasible timescale or at all)? Why are you not planning to sell it - that would seem most sensible right now but you may have a lot of information we have not seen (and property prices might do some precipitous things)?

          Comment


            #6
            1. If you are not married, you can send a letter to inform the Tax Office, :

            Dear Tax Officer ,

            We ( Mr A & Ms B ) are joint owners of a property at 99 , Superstar Road , Film Town . We will put the property out for rental .

            We have agreed the annual rental income and expenses to be apportioned A - 1% and B 99%. The estimated gross annual rent is about £10,000 . B is not working and her only income is from rental profit.

            Yours sincerely,

            Signed by both A and B .

            2. If you are moving overseas, you should register as a non-resident landlord with HMRC. You can claim the personal annual allowance and may not need to pay UK Tax. But you may have to declare the rental income to the tax office in your overseas country.

            Comment


              #7
              You'll also have to make sure your agent (or tenant if there's no agent) know how to handle the overseas money transfer.
              Unless HMRC give you an exemption, any rent paid to you will need to be paid less the base tax rate and whoever pays it will have to report every six months to HMRC the payments and deductions.

              You will complete an annual tax return to claim any tax rebate applicable.

              If the split ownership means that there would really be no tax to pay, it's possible HMRC will allow the exemption to avoid making an annual rebate.
              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
                Hi Andrew,

                Thanks for your reply.

                With regards to the profitability of it, it's not really about that fors us - we're both in the military (moving to a UK overseas loction (Cyprus) so we still come under UK regulations) , and I'll be the one gaining the extra income to compensate for my OH to have a career break. Once rented we are unlikely to want to come back to be honest. We'd be using a fully managed service as we can't deal with tenants phoning us up. We are in the GL2 area, house prices have risen fairly fast in the past few years, we havent benefitted from any of it as we bought probably at the peak in Aug 18.

                We are in a 5-year fix which started in 2018, I think the mortgage is portable, we own a new-build but with none of the gov schemes.
                Judging what other homes in my area are selling for, they seem like they take some time - the letting agent who came around did suggest why are you not selling it (the house is showhome condition) but I don't think we'd break even, we'd take a loss of around at least 10K - we'd still be in positive equity (as we started with a lot) but something we'd probably not want to do.

                We need to get married to move overseas to benefit from military allowances.

                Comment


                  #9
                  Gordon999,

                  Does that include the fact that we own the property in a 60/40 split?

                  I'm starting to think that it may just be easier to when we get married to keep ratios at the standard 50/50, an we both submit tax returns accordingly. The rent we'd get is approx 925, the agent takes 9%+VAT (so assume we're left with around 800). After submitting returns, I'd pay 20% on 50% on the rent which would be £80 (back of fag packet figures). So we're left with net £720, meaning we have to contribute £100 od to our mortgage, Ie, a loss.

                  However, for most that seems bad, but, my income will be going up +£1000, and military housing will be essentially free, so overall, we are likely to be better off (even if one of us isnt working) - ie bills currently beinf around £1200, compared to £300 overseas.

                  Comment


                    #10
                    Originally posted by nando111 View Post
                    We are in a 5-year fix which started in 2018, I think the mortgage is portable, we own a new-build but with none of the gov schemes.
                    Judging what other homes in my area are selling for, they seem like they take some time - the letting agent who came around did suggest why are you not selling it (the house is showhome condition) but I don't think we'd break even, we'd take a loss of around at least 10K - we'd still be in positive equity (as we started with a lot) but something we'd probably not want to do.
                    OK but are you prepared to accept that you might not be able to move back into your home for several years after you return, or possibly forever, depending on the legal and political landscape then. You need to factor in the cost of renting something yourself for a protracted period, or the significant possibility of having to buy a second place yourself.

                    "Fully managed services" can be a good holding measure, but they are also often the scenario where things go very badly wrong. At the very least you must select the tenant yourself based on very very stringent criteria (lots of personal assets or cash in the bank, unblemished history, all adults with stable income, did not behave badly as a tenant during lockdown or ever... etc).

                    It is still the case that the least risky option may be sell or leave the property vacant. A loss of 3 years worth of rent where a lot will be taken by management fees and your ongoing mortgage may pale into insignificance versus the other potential (and not unlikely) outcomes.

                    Comment


                      #11
                      Make sure that your agent makes the tenant aware in writing that this was your home and that you may wish to use ground one of Section 8 of the Housing Act 1988 if you need to retake possession.

                      This is a specific route to recover a former home being let when you wish to move back in.

                      It's hard to contest, so it does mitigate a number of risks (although, as noted above, it could possibly be repealed or amended by other, less helpful, legislation)
                      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


                        #12
                        nando111,

                        The allowable expenses against rental income include letting agent charges , building insurance, gas certificate and ( service charge for flats ) plus 20% of annual mortgage loan interest .

                        Say your monthly surplus is £800 = £9600 per year less £1020 for interest ( 20% of £5100 mortgage interest at 3% )

                        Rental profit = £9600 - £1020 = £8580 . Your share = £ 8580 x 60% = £5148 and Your income tax at 20%= £1030.

                        So if you send the letter signed by both persons to Tax Offfice, you can expect to save £3000 tax over 3 years.

                        Comment

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