Using Spouses lower tax rate - advice needed please?

[Into the unknown]

Hi all,

I am about to rent out my first house - it is in my name and has a small mortgage. I have subsequently married and live in a different house and we have a joint mortgage on it.

I am a higher rate tax payer and my wife isn't. I wanted to rent the house in my wife's name and all the income to go to her as she would be liable for less tax. I have been advised that you can set up a declaration of trust to do this. Is this all you have to do? Do I have to transfer my wife's name onto the mortgage as well or is the declaration of trust sufficient? Do I need to contact mortgage company about this? Is this enough without being tenants in common? In a nutshell I don't fully understand and want to do this properly!

Are there any CGT implications? Can we use both of our 10,100 allowances when we come to sell?

Thank you in advance.

[Phlash]

If you want to do this properly and you don't fully understand, then I suggest seeking some professional paid advice.

It's always dangerous to decide to plough through a minefield, when you could simply walk around it.

A decent tax accountant should be able to advise accordingly.

[theartfullodger]

H.................
I am a higher rate tax payer and my wife isn't. I wanted to rent the house in my wife's name and all the income to go to her as she would be liable for less tax. ............



Thank you in advance.

Easy! Transfer the ownership & mortgage 100% into wife's name and all will be legal!! No problem... You can trust each other, can'tcha??

Anything else might be considered by some & HMRC as fraudulent ....

[Ericthelobster]

Easy! Transfer the ownership & mortgage 100% into wife's name and all will be legal!! No problem... No, better to transfer it into joint names (with 99% to her) as 'Tenants in Common'. The point being that once it's in joint names you can subsequently vary the % very easily (with a Declaration of Trust I think) - for example when you come to sell the property, you'll want to use both your CGT allowances, won't you. The Land Registry only records the fact of joint ownership, not the %, so you don't need to involve them whenever you change %.

The important thing is that you change the Land Registry entry; I expect the mortgage needs changing too though, but that shouldn't be a big deal?

(In the above scenario you then pay your high rate tax on only 1% of the profits from renting).

[Into the unknown]

Thank you for your replies. Much appreciated! Just to confirm the benefit of being tenants in common is that you can use both capital gain allowances at a later date. This cannot be done by a declaration of trust?

[TaxationPete]

News Flash.

If you tranferred the property to your wife you would loose your PPR exemption and up to £40,000 of letting relief. This would be a very back idea. You need to have face to fave well versed professional advice on this and you need a business plan detailing how long you are going to rent it for that are the effective valuse of the property and some real numbers. Tell me when you bought it, when you left it and the value at purchase and the est value when you left and how long you may rent it out for and I'll run the numbers for you. Regards peter

[Into the unknown]

Thanks Peter,

I bought the property in April 2000 for 45,000. I lived in it until August 2007 when I moved in with my fiance (now wife). My brother lived with me for the final year (no rent) and as I didn't want to boot him out has continued to live there till now (again no rent). Brotherly love for you! I had put the house on the market for 109,000(going rate for them now) but have had little interest due to time of year and lack of first time buyers so have decided to rent. In the long run I feel it will probably be a much better investment than selling now. We have found a tenant and want to rent it out in the new year. Obviously as i explained earlier with my wife being a lower rate tax payer we wanted to utilise this and was advised by a friends dad (a solicitor) that we could do a declaration of trust to achieve this.

I have discovered this website and read many posts about declaration of trusts and tenants in common and was just a little confused about the right thing to do! Also, I wanted to keep an eye on the CGT situation as I want to pay as little as possible in years to come when we come to sell it and utilise my wife's allowance if possible?

I really appreciate the advice on here. I want to do this properly. Hopefully our tenant will stay a long while so I have no plans to sell at the minute. Could you please give me a rough guide for if we sold in 5, 10, 15 years?

Thank you so much.

[Gordon999]

Does anyone know where they will be in 15 years time ?

Second UK Bank crash ! State pension starting age raised to 75 yrears !

[TaxationPete]

So you rent it out for 5 years then sell for £130,000 :
Total Gain 85,000
PRR 55,909 123 187
Capital Gain 29,091
Lett Relief 27,125
Net Gain 1,966
CG Allow 10,100
CGT 18% 0
CGT 28% 0

CGT Bill 0

You sell for 150,000 in 2020 :

Total Gain 105,000
PRR 52,077 123 248 That is the PPR apportionment 123/248
Capital Gain 52,923
Lett Relief 40,000
Net Gain 12,923
CG Allow 10,100
CGT 18% 508
CGT 28% 0

CGT Bill 508 As a Higher Rate tax payer you will be paying CGT at 28% so £791

If your wife was the sole legal owner of the property and she had no income the numbers fall out like this :

Total Gain 105,000
PRR 0 0
Capital Gain 105,000
Lett Relief 0
Net Gain 105,000
CG Allow 10,100
CGT 18% 6,732
CGT 28% 16,100

CGT Bill 22,832

You need to discuss this with a well versed legal professional resolve your issue of legal and beneficial ownership.
If you establish beneficial ownership in your wifes favour but prior to any exchange of contract the beneficial ownership is reverted to you then as you are the legal owner PPR and LR will apply.
However this would not use your wifes capital gain allowance of £10,100. With some carefull maths then she count be make an owner of a % of the property so that she has enough reportable gain to mop up her unused CGAllowance. But remember the % which is hers does not attact PPR or LR and you would loose some PPR and the appoinment would be on a reduced sum. Whater abouts are you in the country.

Regards Peter

[Into the unknown]

Thank you so much Peter. I am much clearer about this now. I am based in Derbyshire. As I said before I do have a friends Father who is a solicitor who has offered to set up a declaration of trust for us. Like you said, this would keep me as the sole owner but enable us to use my wife's lower tax rate. I just wanted advice and to make sure this was the correct way about it after reading on here about tenants in common etc. Thank you so much for doing the CGT figures for me. Looks like we'll be ok as long as we get professional advice!

[Into the unknown]

Just a quick question Peter, is it a good solicitor or tax accountant that would be most useful to us?!

[TaxationPete]

A well versed solicitor is the way to go. Also get him to submit the Form 17 to HMRC to establish credibility Regards Peter

[Telometer]

By well versed, Pete means one who understands tax.

Theartfullodgers's post shows just how easy it is to go wrong.

[Into the unknown]

Thank you Peter for all your advice and Telemoter for your post. I feel much better about this now and will ensure the solicitor I choose is definitely well versed in tax!

[Into the unknown]

I think I have this clear in my mind and what to ask the solicitor to do - it will definitely help to know prior to the meeting!
I need to stay the sole owner so I can claim PRR and lettings relief so need to set up a declaration of trust so my wife can have beneficial ownership and benefit from the rent income and use her lower tax. Also a form 17 needs to be filled out.
This way when it comes to CGT we can use my allowances as pointed out kindly by Peter in the figures.
Couple of quick questions;
Does the AST need to be filled out in my name as the sole owner or my wife's?
Does the rent income need to be paid into my wife's account or is a joint account ok?
Obviously my wife needs to fill in the self-assessment form but who should phone HMRC to say we are renting it, me or my wife?

Thank you in advance.

[jeffrey]

Thank you so much Peter. I am much clearer about this now. I am based in Derbyshire. As I said before I do have a friends Father who is a solicitor who has offered to set up a declaration of trust for us. Like you said, this would keep me as the sole owner but enable us to use my wife's lower tax rate. I just wanted advice and to make sure this was the correct way about it after reading on here about tenants in common etc. Thank you so much for doing the CGT figures for me. Looks like we'll be ok as long as we get professional advice!
If a Trust Deed is used (but no change in legal ownership), remember the need for registration of appropriate HMLR Restrictions.

[TaxationPete]

Jeffrey is spot on as usual. I would expect the solicitor to deal with this via forms RX1 and ID1's for the legal and beneficial owners involved. Regards Peter

[Into the unknown]

Thank you both. I will definitely ensure those 2 forms are completed as I want this to be done correctly.

I think I have this clear in my mind and what to ask the solicitor to do - it will definitely help to know prior to the meeting!
I need to stay the sole owner so I can claim PRR and lettings relief so need to set up a declaration of trust so my wife can have beneficial ownership and benefit from the rent income and use her lower tax. Also a form 17 needs to be filled out.
This way when it comes to CGT we can use my allowances as pointed out kindly by Peter in the figures.
Couple of quick questions;
Does the AST need to be filled out in my name as the sole owner or my wife's?
Does the rent income need to be paid into my wife's account or is a joint account ok?
Obviously my wife needs to fill in the self-assessment form but who should phone HMRC to say we are renting it, me or my wife?

Thank you in advance.

[jeffrey]

AST: show legal owner's name [= you, if no Transfer to joint names is involved, and your wife acquires only a beneficial interest].

[Into the unknown]

Thank you Jeffrey, much appreciated. Anyone know the answer to these questions?


1.Does the rent income need to be paid into my wife's account or is a joint account ok?

2.Obviously my wife needs to fill in the self-assessment form but who should phone HMRC
to say we are renting it, me or my wife?

[Phlash]

Glad to see that you will go down the professional route.

Tax accountants are different to accountants in my mind - I would expect them normally to have a close working relationship with a solicitor with whom they consult to ensure queries like yours are structured legally and tax effectively. Some solicitors who are well versed in tax, can still get confused, so I would just bear that in mind. Sounds like a tax vs solicitor debate, but what I am advocating is that both sets of eyes have had some sort of sign off.

A joint account should be fine. Having a separate account to any other expenses etc is a great idea, because viewing your income and expenses is made so much easier. If you take on an accountant it should take them less time to help you with your tax affairs, and time is money!

About phoning HMRC - do not be concerned by this, it doesn't matter. What is on your tax return is what matters. HMRC are not nearly as competent as normal tax payers think, and any belief that it would matter as to who phones them is not well founded. HMRC will just be happy to hear that another tax payer will be declaring their income and paying down the national debt.

[Into the unknown]

Many thanks for your reply phlash. I will feel much better now being armed with some knowledge before I meet an solicitor or accountant. There's no way I would try and do this on my own!! Professional help definitely needed!

[Ericthelobster]

If you tranferred the property to your wife you would loose your PPR exemption and up to £40,000 of letting relief.Sorry, didn't spot that you used to live in the property yourself! :eek: