Getting married and reducing BTL tax

[bhodgkiss]

Hi all

I have two BTL's just in my name, and hopefully a third soon.
My partner doesn't work.

When my partner and I get married, am I right in thinking that we can simply change the ownership of the two BTL's to joint ownership, then go down the tenants in common route for her to take home say 95% of the profits (and use her tax free allowance to the max)?

I know you'll mention the 'what if you divorce' scenario, so I don't need that discussing here please (!)

Are there any downsides at all to doing this? Any increase to the capital gains when we sell, or SDLT when we do joint ownership etc?
Or is it just a 'perk' of marriage?

Many thanks

[Mrs Mug]

Do you have mortgages on the properties?

[theartfullodger]

Never realised there were any perks of marriage.. (Artful, on 3rd marriage...)

[bhodgkiss]

Ha!

Yes sorry I have mortgages on both.

[jpkeates]

There are a couple of obstacles to overcome.

The transfer of ownership needs to be agreed with the mortgage lender.
They may have an issue with the change as the mortgage will be in your name solely and they might not want anyone else to have a claim on it.
It is inconvenient for the lender if you die and the property transfers to the joint owner leaving them with no security.

If you transfer ownership with your wife taking on responsibility for the mortgage the transaction is treated like a sale and there is SDLT to pay, based on the mortgage value rather than the property value.

You need to talk things through with an accountant who knows your specific circumstances, because normally whether or not something is worth doing is very specific to an individual and the time frame over which it's measured.
A simple example would be that if the tax savings are £2k a year and the SDLT payable is £15k, is it worth it to you?
Without knowing your particular situation, it might be best to not do it for a while, do it now to get the maximum years of tax savings, or you don't have £15k so it's academic.

[jpkeates]

Never realised there were any perks of marriage.. (Artful, on 3rd marriage...)

There are many advantages.

Before I was married I didn't even know there was a wrong way to put milk in a fridge.

[bhodgkiss]

Many thanks

So does my wife (to be) have to take on half the responsibility for the mortgage to be able to take home half the income?

If so, would she avoid paying SDLT anyway if she's not bought a house before?

We're at the end of the mortgage term on one of the mortgages (its just reverted to the SVR) so this might be easier to now swap to joint names on a new mortgage deal?

[jpkeates]

That's a question for the lender.

In order for the income to be split, the ownership of the property has to be split.
The lender is lending with the property as security.
If your wife isn't involved in the mortgage, the security is at risk.

[Claymore]

No your wife does not need to take on half the responsibility of the mortgage to take half the income. However, if you as the main bread-winner failed to pay the mortgage, the lender would be chasing your wife for the repayments as well as you.

Now is a good time to transfer some equity into your wife's name. Just make sure that whatever percentage you transfer, it works out at less than £40k of the mortgage value and she won't have any SDLT to pay.

Once you have done this, you can then do a declaration of trust, allocating your wife a bigger share (if you think necessary) - complete a Form F17 on the percentages you wish to have for yourselves and based on those percentages - that's how you declare your taxable earnings.

I'm expected to get shouted down on this but this is quite commonly done.

[Claymore]

Actually, dont do any of the above until you are actually married.

[jpkeates]

No your wife does not need to take on half the responsibility of the mortgage to take half the income. However, if you as the main bread-winner failed to pay the mortgage, the lender would be chasing your wife for the repayments as well as you..

They can "chase" all they like, but a wife isn't liable for her husband's debt(s).
On the other hand, they'd repossess the property if the mortgage isn't paid.

Lender policies vary, but their terms and conditions normally don't allow any transfer of title or beneficial ownership without their consent (which the solicitors making these transfers don't seem over concerned about) and they are likely to either decline or want both beneficial owners on the mortgage associated with the property.

[Claymore]

My impression from original poster is that wife goes onto the mortgage and title. Even if wife is only on the title for 1% and named on the mortgage, both husband and wife are jointly liable for the full mortgage.

[bhodgkiss]

Thanks all

So for example, on the BTL I have just in my name which has come to an end (and now reverted to SVR) can I take out a new joint mortgage, transfer £39,999 of the property value to my wife (so no SDLT for her). The property is worth £260k so she'd then only own 15% ish. Remaining mortgage is currently £135k.

Can we then still do tenants in common and she gets 95% of the total income? If that's the case, can I just transfer over 1% of the property.

Or do we have to own 50/50 each to be able to get the tenants in common agreement set up?

And do we actually have to be married to do any of this?

[jpkeates]

The rules are different for married couples and non-married couples.
You don't have to be married to reduce your tax, but the mechanisms are different (non married couples don't need a deed of trust, for example).
There are significant risks in sharing property with someone you're not married to (and to a spouse, but there are well established processes to divide married couples property)

The tax rules are nothing to do with the title ownership, so the percentages held as tenants in common don't matter.
Tax follows beneficial ownership, which reflects reality, who paid for what and who receives what.

Walk it through with an accountant who knows your specific circumstances.