Joint tenants to Tenants in common

[polo2000w]

Hi there

Would appreciate people's help on our situation. Myself and my wife both own a property that we rent out. This is held as a joint tenancy, and we have an outstanding mortage of £200,000. I am a higher rate tax payer, but my wife will soon be a basic rate tax payer. At the moment, I believe we both show 50% of the flat profit.

I've read a few forums and articles and believe the following would help reduce our tax liability.

1) I understand we can switch this to a tenants in common arrangement (through a SEV form).
2) We can then draw up a deed of trust between us to allocation new proportions eg 10% to me and 90% to my wife
3) There isn't any stamp duty payable as the debt transferred will be £80k, less than the £125k threshold.
4) Submit a Form 17 to HMRC to declare the new proportions.

Would this work and is this allowable under the rules? Is there a simpler route to achieve this without having to effectively gift 40% to my wife? Do I need consent from anyone - eg my mortgage lender to do this? The mortgage for the flat is currently being paid from our joint acccount, effectively funded by the rent coming in - so there is no 50/50 or 90/10 split as such in terms of paying the mortgage.

Do I need a solicitor or tax advisor to do this - or is it really as simple as the steps above?

Many thanks in advance for your help.
Regards
Polo

[Gordon999]

Hi there

Would appreciate people's help on our situation. Myself and my wife both own a property that we rent out. This is held as a joint tenancy, and we have an outstanding mortage of £200,000. I am a higher rate tax payer, but my wife will soon be a basic rate tax payer. At the moment, I believe we both show 50% of the flat profit.

I've read a few forums and articles and believe the following would help reduce our tax liability.

1) I understand we can switch this to a tenants in common arrangement (through a SEV form).
2) We can then draw up a deed of trust between us to allocation new proportions eg 10% to me and 90% to my wife
3) There isn't any stamp duty payable as the debt transferred will be £80k, less than the £125k threshold.
4) Submit a Form 17 to HMRC to declare the new proportions.

Would this work and is this allowable under the rules? Is there a simpler route to achieve this without having to effectively gift 40% to my wife? Do I need consent from anyone - eg my mortgage lender to do this? The mortgage for the flat is currently being paid from our joint acccount, effectively funded by the rent coming in - so there is no 50/50 or 90/10 split as such in terms of paying the mortgage.

Do I need a solicitor or tax advisor to do this - or is it really as simple as the steps above?

Many thanks in advance for your help.
Regards
Polo

The answer to your question may already be given in another thread called "Tax Advice" started by Gibbsy on 23 Aug. See post 2by Taxationpete

[polo2000w]

I'm not sure this is quite the same situation, because there the person wanted to transfer from sole to joint. Here, we already own the property jointly, but simply wish to change the proportions. Is this possible under the steps above? In particular, can it simply be done with a deed of trust, or do we have to change to tenants in common and transfer mortgage consideration?

[michaelwgroves]

I have exactly the same question, it looks like a lot of people are making reference to this with thier thoughts, but I have yet to find a definitive answer. Has anyone actually done this, and if so did you speak with a solicitor or tax consultant?

Thanks
Michael

[polo2000w]

Agreed. I guess I am trying to find out whether it is possible to alter the tenants in common ratio on a mortgaged property (eg from 50/50 to 90/10) and not require to fill in a stamp duty form?

Both people would still be legal owners and jointly responsible for the mortgage debt. Does the mortgage liability proportion need to change? So effectively it would work as a pure gift?

[michaelwgroves]

I spoke with inland revenue and my solicitor yesterday.
If you want to pay your partner the lions share of the income to avoid tax you must do a few things;

1. All rent paid must be paid to your partner
2. Preferably they should spend it, not give it to you
3. Change tenancy to Tenancy in common, say 99% and 1%
4. Submit form 17 to HMRC detailing split
5. Setup a declaration of trust, transfering beneficial interest to partner
6. Prove you purchased property 99% and 1%

The last one is the tough one as most people reading this thread would have already purchased thier property. But if you are buying it's important that the deposit is split 99/1. It would apear it is acceptable for you to gift an amount of money to your partner for them to use as thier deposit, but you should gift it before the purchase so they are using thier own money.

My thoughts are most people who have a declaration of trust have a worthless piece of paper as they will fall over on the last point if they are inspected by HMRC. Even though they had a solicitor draw up the paper, the solicitor can not offer tax advise, only legal advice.

I will still transfer benefical interestes on all my existing properties to my partner, but my next purchase I will ensure it is purchased correctly. And then on the very slim chance we are inspected hope they do not dig too deep as proving actual ownership might be tough.

**Note - Remember tax avoidance is legal, tax evasion is not. The points I make above are to avoid tax which is just good old fashioned tax planning.

Regards
Michael

[Mr Green]

1. Prove you purchased property 99% and 1%

The last one is the tough one as most people reading this thread would have already purchased thier property. But if you are buying it's important that the deposit is split 99/1. It would apear it is acceptable for you to gift an amount of money to your partner for them to use as thier deposit, but you should gift it before the purchase so they are using thier own money.

My thoughts are most people who have a declaration of trust have a worthless piece of paper as they will fall over on the last point if they are inspected by HMRC. Even though they had a solicitor draw up the paper, the solicitor can not offer tax advise, only legal advice.

I'm not sure about this at all. Why can you not gift part of your share to your husband or wife at any time? I don't see why the question as to who originally bought/paid for it is relevant.

[michaelwgroves]

Inland Revenue were very ascertive that if for any reason they thought you were simply transfering beneficial rights to evade tax they would tax on the bases of 50/50 regardless. You have to prove beyond all doubt that your partner owns 99% and thus receives benefits acordingly.
If the transfer was at "arms length" it would not be scrutinized so much.

Typically the majority of these are for small landlords that do not come under the watchful eye of HMRC as they are too small. Therefore there appears to be no evidence of these being challanged that I can find. Therefore, for the time being, unless someone has some hard facts, I would use best endevours to cover all angles just incase you are the chosen one!
I'm not an expert on this, but I have done a reasonable amount of research.

[michaelwgroves]

These links are particularily interesting, especially the first 2;

http://www.markmclaughlin.co.uk/index.php/archives/868

http://www.hmrc.gov.uk/manuals/tsemmanual/tsem9800.htm

http://www.stepjournal.org/journal_a...0_50_rule.aspx

http://www.pglaw.co.uk/news/press-release-15-11-11.html