Deed of Trust not valid?

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    Deed of Trust not valid?

    Hello,

    I have just had a trust deed drawn up to have my wife benefit the rent as she currently has no income.
    I'm in the process of filling out Form 17 to send to the HMRC.

    However, the following has dawned on me;
    My wife does not own any share of the properties nor does her name appear on the mortgages. Am I still able to use her as the rent/beneficiary?

    Any advise greatly appreciated.

    Ashley

    #2
    Simple!! Transfer the property to her 100%. Job done!
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

    Comment


      #3
      That means transferring the mortgage over as well?

      Comment


        #4
        Don't follow theartfullodger's approach.

        Presumably the deed of trust does, anyway, transfer the property to her 100% (save for the legal title). At which point you do not need (IMO) to submit a Form 17 at all, as the property is not joint names. Read this thread for an alternative view as well (I do not understand the position for the alternative view, IMO it arises from muddled thinking - but I think King_Maker thinks that about my view.)

        http://www.landlordzone.co.uk/forums...-spouse-income

        Most importantly: (1) get a solicitor to draw up the deed of trust (2) obtain tax advice from him on the Form 17 point.

        Comment


          #5
          I've spoken to HMRC today. They state that unless the property is in joint ownership, the beneficiary with regards to tax, can only be The Owner. Hence, in my case, my wife's tax allowance cannot be used.
          To use a declaration of Trust for the purposes of gaining a tax advantage would be considered tax evasion. They were pretty categoric about it!

          Additionally on Form 17 (http://www.hmrc.gov.uk/forms/form17.pdf)it states;

          'Do not fill in this form about property that is not held in unequal shares (you cannot choose to have the income taxed on an unequal basis because you think it would be to your advantage). The bit in brackets is of concern.

          Also stated;

          'If you live together with your spouse or civil partner, we normally treat income from property held in your joint names as if it belonged to you in equal shares and tax each of you on half of the income, regardless of actual ownership.'
          JOINT names, then at the end of the same sentence, REGARDLESS of ownership!

          I've spoken to my solicitor and she knows little about this as does my accountant. I've also shopped around for the best part of 2 hours, making calls and enquiries and no solicitor or accountant is interested or knowledgable on this subject.

          Unfortunately there's no smiley for banging your head against a brick wall..

          Comment


            #6
            Originally posted by Harper's Ash View Post
            I've spoken to my solicitor and she knows little about this as does my accountant. I've also shopped around for the best part of 2 hours, making calls and enquiries and no solicitor or accountant is interested or knowledgable on this subject.
            Ring one of the tax accountants who advertise on this site.

            http://www.landlordzone.co.uk/dir/ac...s-taxation.htm

            Comment


              #7
              My current accountant and my previous (& incompetent) accountant are both on this list!

              Comment


                #8
                Here's a snippet from HMRC which IMHO clears this up. There's a lot of greyness in this area so when Mr T. Ax turns up, I'll be waving this under his greedy little nose.

                TSEM9922 - Ownership and income tax: Specific types of property: land and buildings: example 2: sole name - valid declaration of trust
                A house is held in the sole name of A, and the Land Registry documents confirm this. The house is rented out, but the rents are received by B, A’s adult daughter.

                A submits a written declaration of trust dated 01/06/06 and signed. In it A states ‘I hold the house at 23 Ranley Gardens on trust for my daughter B absolutely’. The declaration (TSEM9520) is valid.

                The declaration transfers the beneficial ownership from A to B on 01/06/06 and she is entitled to the rents, and taxable on them, from that date. However, if the daughter was a minor the Settlements legislation may apply so that A would remain taxable on the rents until the daughter reached 18 (see TSEM4300).


                AND TAXABLE ON THEM. AND TAXABLE ON THEM!!

                From http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM9922.htm

                I'm sure there'll be someone looking deeper and further than me on this and come up with a caveat or exclusion. I await such a response. But for now I'm a happy bunny.


                As for Form 17. Still no idea if this is required.

                Comment


                  #9
                  Isn't TSEM9923 more applicable in this case? Tax rules are often different with spouses then others.

                  TSEM9923 - Ownership and income tax: Specific types of property: land and buildings: example 3: sole name - Settlements legislation

                  A house is held in the sole name of A, and the Land Registry documents confirm this. The house is rented out and the rents are paid to A. A claims that all the rent is taxable on his wife B.

                  A produces a ‘trust deed’. A claims the ‘trust deed’ transfers the right to income to his wife. But even if the trust deed does validly transfer the right to all of the income from A to B, that would constitute a settlement of the right to income, because A would still retain an interest in the property itself. Consequently the settlement would be caught by ITTOIA/S624 and all the income would remain taxable on A (TSEM4200).

                  Comment


                    #10
                    I don't think ITTOIA s624 is applicable as the trust deed isn't only transfering a right to income, it is transfering beneficial ownership of the asset.

                    s624 relates to a settlor retaining an interest but the declaration of trust is the settlor giving up that interest.

                    Simply, this planning does work if done competently!

                    All the best
                    Adam

                    Comment


                      #11
                      HMRC are (just for a change - don't listen to their unhelplines) wrong.

                      JaneK2011's extract from the manuals only applies, as TaxAdvisor (are you American, spelling it like that?) says, if it is only the income that is transferred, not the asset as well.

                      Comment


                        #12
                        JaneK2011 and Adam.

                        I hope you're still around, I've not checked the forum for a while but this conundrum is still niggling.

                        JaneK, there are 2 differences between the examples above in TSEM9922 and TSEM9923;

                        TSEM9922-Adult daughter is beneficiary the & Adult daughter receives the rent. Daughter is tax liable.
                        TSEM9923-Wife is the beneficiary but I receive the rent. I am tax liable.

                        Question is, in TSEM9923 does the tax liability change because my wife is the beneficiary, or because the rent is received by me?

                        There must be thousands of us doing this and I'm surprised the facts are so elusive..
                        Love to hear others opinion on this.

                        Ashley

                        Comment


                          #13
                          Facts aren't elusive. No need for opinions.

                          To be outside the settlements legislation you need to transfer the beneficial interest in the capital item that is the property and the income item that is the right to rental income.

                          Comment


                            #14
                            Telometer,

                            And a deed of trust achieves this I presume?

                            In this case does form 17 need to be submitted?

                            Comment


                              #15
                              Yes.

                              No, but see link in #4 above.

                              If the property is mortgaged then you are likely to need to inform the mortgage co. Your solicitor will advise.

                              If you have ever lived there, then transfer 99%.

                              Comment

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