Transfer of beneficial interest

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  • Transfer of beneficial interest

    I have a jointly owner property with a mortgage. The joint owners are not a couple but other family members. We want to transfer the rental income from the property to 100:0, so only one has to do tax returns. How would we do this and do we need a lawyer for the paperwork? Can this be done with a Deed and what would this Deed be called?

  • #2
    You should consult the local Hmrc office or a taxation accountant as to what document is acceptable for the joint owners to declare all the rental income goes to one of the joint owners.

    http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM9220.htm

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    • #3
      Hi, you first need to establish what kind of Joint ownership you have - is it a declared 'Joint Tenancy' (effectively equal shares) or as 'tenants in common' (you each own a defined % even if equal). This will be important for the wording of any document you need drawn up and will have a massive effect on what happens if one of you died or wanted to sell their share.

      As far as I know you cannot just declare to HMRC that one owner only is the landlord, but it might be possible to justify it, especially if one owner only was managing the let, doing maintenance, paying all expenses etc. *In that case just declare the income on one self assessment and have evidence to prove one owner doing everything if audited (unlikely). *This would probably only justify an unequal share however, not a 100%-0% split.

      Assuming you are 'tenants in common' then in theory under s53(c) Law of Property Act 1925, then to dispose of (transfer) an equitable interest you only need a document in writing signed by the owners, although check for standard formats (land registry website). You then need to inform land registry. Most people use a lawyer or conveyancer to do this.

      However there are massive pitfalls.

      1. Once you have transferred the interest then it stands, so if one of you wanted to use your share or pass it on in your will, you would not be able to. The person holding 100% would could leave it all to their kids or even sell it and you would have little come back save some very costly and drawn out legal proceedings. The only way to get round this is to make matching wills and sign an agreement to transfer the interest back if needed. But you have to trust you family not to change their wills and hope HMRC knows nothing of the agreement unless they take the view that the transfer is not bona fide and slap you with the tax at a later date.

      2. CGT. You are liable for CGT on any transfers between you and your family (except your spouse), unless you and all the other owners have lived in the house in the last 3 years - even if no money changes hands. If you give away the interest, then they take what you bought it for (or market value when you got it) and take away its market value now. Of course you won't pay CGT if its within your allowance (£10,600) or if the market value has decreased, which may have happened in the current market.

      Personally I would not transfer the interest with anyone but my wife, as the CGT, Wills, etc problems don't arise. But if you get different advice from a lawyer or tax accountant I'd be really interested to hear it.
      caveat emptor
      If it sounds like I know what I am talking about........I don't.

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