Rental Income and Taxation

[AAS]

Hello everybody,
I am new to this site so please forgive me if my question is very silly.
Me and my wife own a house. I have been living in the house for the last 3 years and I got married two years ago and so my wife lives with me for the last 2 years. The mortgage is in my name only because my wife is a house wife. We intend to rent out this house and buy another house to live in another city. I am a higher tax payer and I was wondering if it would be possible for me to get the rent in my wife's name to minimize the income tax on the rental income. So my questions are:
1. Can I get the rent in my wife's name instead of my name?
2. IF I Can, then can I still offset the interest on the mortgage against income tax/Rental income?

I would be so grateful if anybody can comment.
Many thanks
AAS

[Tristan]

Hi

I'm assuming that the house is held in your name only, since the mortgage is in your name. It might be possible to argue that you hold this on bare trust for you and your wife jointly.

If not, you could always put the house and the mortgage into your joint names. You will need to ensure that the property is held as tenants in common as opposed to joint tenants.

Giving a share in the house to your wife should not create any CGT problems (provided you are not separated), but I'm not sure whether there is any Stamp Duty Land Tax to pay if you assign a proportionate share of the mortgage to her - this would need checking.

If you own the property jointly as tenants in common, and you are man and wife living together, then the income will be initially treated as being taxable on each of you equally. When you put the property in joint names you should specify the ownership ratio - in your case you will want the majority in your wife's beneficial ownership so the rent is taxable on her. You then need to make an election (under s282A ICTA 1988) to both your tax offices that the rent is split in accordance with the ownership - i.e. mostly on your wife.

The appropriate share of the rental profit (i.e. after mortgage interest) will be taxable on each of you. Note, though, that your wife now owns the bulk of this property, and on a sale the proceeds would need to flow in line with the ownership (unless of course, you wanted to transfer some back from her before the sale, e.g. to use up allowances etc). Also, if she were made bankrupt/sued/died etc, the property is in her name.

Either way, you'll need a solicitor to draw up the documents and deal with the bank and land registry. You should also ask him to consider the suggestion above, and specifically whether the settlements legislation applied to the arrangement - meaning that the income remains taxable on you.

Hope this helps.

[AAS]

Many thanks, its very much appreciated and is very helpful.
The rent agent had told me that I can get the rent in my wife name although the mortgage is in my name and not in her name, so it does mean that his information are not correct??
AAS

[Tristan]

I wouldn't like to say that your rental agent is wrong, as he probably sees this more often than I do. I'd be interested to hear how he thinks he could affect the arrangement - maybe a Declaration of Trust or something similar.

As I said before, you'll probably need a solicitor to draw up documents so you can ask them the question.

[AAS]

Many thanks for your help.....
AAS

[Tax Accountant]

Many thanks, its very much appreciated and is very helpful.
The rent agent had told me that I can get the rent in my wife name although the mortgage is in my name and not in her name, so it does mean that his information are not correct??
AAS

Just because the rental agent has agreed to pay the rent to your wife, doesn't mean that it would belong to your wife for tax purposes.

To do as you suggest, it would be best to see your solicitor to prepare a Trust Deed to reflect that you have gifted say 99% of the property and mortgage to your wife. Thereafter, you will need to complete the appropriate form to notify the Inland Revenue of the appropriate beneficial ownership shares between you and your wife.

Ramnik