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

[hospitality]

Thank you Michael Groves

[michaelwgroves]

Mrs Mug is correct, you should have a joint account for all rental income and outgoings. There are many more reason, this is just one of them.

Rental income and all outgoings should be paid from this account. Remember, 99/1 split is on profit not on income. If your portfolio is fairly static you could take profit monthly, but make sure it's 99/1.
Alternatively if your maintenance costs are unpredictable you might want to take profits quarterly or even 6 monthly. It's not a problem either way, just make sure you always take profit at the same time at 99/1

[Claymore]

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.

Specifically, this is a route I haven't gone down, but if I ever did, it would only be on my accountants advice. I would imagine there could be many good and valid reasons why a DoT would need to be redrafted.

EDIT: Post 13 makes total sense to me.

[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.

[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?

[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.

[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.

[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.

[Claymore]

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

[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]

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]

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.

[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.

[Claymore]

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

[King_Maker]

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