99/1split, but all rent paid to spouse?

[hospitality]

Just came across a very informative post
http://www.landlordzone.co.uk/forums...ommon&p=395200

Of particular interest is the HMRC advise to michaelwgroves [13-09-2012, 07:40 AM #6]. Item (1) states "All rent paid must be paid to your partner"

Is this HMRC advise right, when the beneficial interest is split at 99 to 1 ? sure it will be much easier that way, however just wondering as the HMRC usually asks for pennies to be counted and would ask for the individuals to receive and report income at 99% & 1% ?

[King_Maker]

Each person should receive the rent in the ratio of the stipulated entitlements (99:1, 60:40 etc).

[Claymore]

I have a 99/1 split (me 99) and all rent comes to me. It's easy enough to work out for tax returns, but if you want all 100% income to one of the owners, you can have a declaration of trust done and send it with Form 17 completed to the tax man.

[King_Maker]

Why are you receiving 100% of the rents not 99% as specified in the DoT

[Claymore]

I have a declaration of trust in place and form 17 went to the taxman.

[King_Maker]

I am still confused. Does the DoT & Form 17 state 99:1 or 100:0 ? The latter would indicate a bare trust as you would be the sole beneficial owner.

[JerzyBalowski]

I'm about to set up a declaration of trust for same reason (see my other recent thread).

So far I've not seen a shred of evidence that there's any difference in legal setup between 100/0 and 99/1. The former is more attractive simply due to me then (as the 0% recipient) not having to submit a tax return.

It would be interesting to see a link to such evidence since my solicitor has no idea.

[Claymore]

I am still confused. Does the DoT & Form 17 state 99:1 or 100:0 ? The latter would indicate a bare trust as you would be the sole beneficial owner.

DoT 100:0

I also have another property that is owned 50/50 and DoT is in place 100:0 in my favour.

[JerzyBalowski]

So a 99/1 split would require a Declaration of Trust (and property registered as Tenants in Common with Land Registry).

But 100/0 would require a Bare Trust?

From this:
http://www.hmrc.gov.uk/TRUSTS/types/bare.htm

It looks like a Bare Trust is a real trust for the purpose of eventually passing the property to a minor who can claim the property when reaching adulthood. Also seems clear from that page that 100% of the Capital Gains Tax would then be due on the beneficiary of this Bare Trust. Not ideal if you were planning to use the combined CGT allowances of 2 persons.

[Claymore]

Later on, if prefered you can do a new DoT with different percentages.

[King_Maker]

So a 99/1 split would require a Declaration of Trust (and property registered as Tenants in Common with Land Registry).

But 100/0 would require a Bare Trust?

From this:
http://www.hmrc.gov.uk/TRUSTS/types/bare.htm

It looks like a Bare Trust is a real trust for the purpose of eventually passing the property to a minor who can claim the property when reaching adulthood. Also seems clear from that page that 100% of the Capital Gains Tax would then be due on the beneficiary of this Bare Trust. Not ideal if you were planning to use the combined CGT allowances of 2 persons.

Bad choice of words - a bare trust is a Nominee type situation. I was trying to show that a jointly owned property where one owner has 0% beneficial ownership holds his/her share entirely for the other spouse.

A DoT will always be needed to change the ratio of beneficial ownership.

[King_Maker]

Later on, if prefered you can do a new DoT with different percentages.

Whilst this is possible in theory, in practice HMRC might challenge any overt manipulation purely for tax purposes.

I recommend some paperwork to indicate non-tax reason(s) for using DoTs.

[michaelwgroves]

I did a lot of research on this previously, Please read my previous posts including links in the link provided at the top by Hospitality.

I was not able to find any conclusive information, other than you need to make every effort to ensure what you advise HMRC is actually taking place.

If you wish to setup a DoT 99/1 in favour of the lower earner you should plan this at the outset. Make sure the lower earner puts 99% of the deposit to purchase the property. You can easily achieve this by gifting the money.
Make sure both the legal and beneficial rights are included in DoT and this is registered with Land Registry.
Mortgage in joint names.
File Form 17 with HMRC.
Rent should be paid to the lower earner. Make sure you both file Self Assessments that record 99/1 split on rent and maintenance.
What the lower earner does with their income at this point is their decision, but I would recommend they spend it. Maybe on food for the family and a contribution towards the main residence mortgage.

Remember, you only need this if your are scrutinized by HMRC, therefore the more you put in place to prove you are not evading tax the better.

Some will say I only filed Form 17 & DoT, that's all that's needed. This is wrong, it's just that you have not been scrutinized yet!
You need to talk the talk, then walk the walk to ensure you cover all angles.

If you do all this I think HMRC will find it virtually impossible to conclude you are evading tax.

[hospitality]

Dear Michael Groves

Say the rent is £1000. Do the tenant pay £1000 to the lower earner's bank account?
Later when doing SA, the lower earner declares £990 and the higher earner declares £10 (applies to maintenance as well). But then what is the evidence for £10 income to the higher earner?

Or do the lower earner pay £10 to the higher earner's bank account ?

Or do the tenant pay £990 to the lower earner's bank account and £10 to the higher earner's bank account?

[Mrs Mug]

Open a joint bank account that only the rent is paid into. Then all outgoings for the property will be paid out from this account.