My first btl purchase

[jingle68]

Hi, i'm about to sign for my first btl property and i dont want to make any mistakes regarding any possible tax implications.
purchase price £113,500.00
deposit £23,500.00
mortgage £90,000.00.

my income £12,000.00 (i work part time).
my wifes income £26,500.00

the rental income on the property will just cover the mortgage repayments (interest only mortgage).
i'm looking at long term investment and hoping for profit from house price rises rather than profit from rental income.

should i sign in joint names or my name only? i have seen mentions of 'trust' in other threads.
thank you for any advice you can offer

[jeffrey]

Hi, i'm about to sign for my first btl property and i dont want to make any mistakes regarding any possible tax implications.
purchase price £113,500.00
deposit £23,500.00
mortgage £90,000.00.

my income £12,000.00 (i work part time).
my wifes income £26,500.00

the rental income on the property will just cover the mortgage repayments (interest only mortgage).
i'm looking at long term investment and hoping for profit from house price rises rather than profit from rental income.

should i sign in joint names or my name only? i have seen mentions of 'trust' in other threads.
thank you for any advice you can offer

Well, to whom did mortgagee (lender) issue offer of advance? Only mortgagor (borrower) can be owner, in most cases, so that offer may be what decides you one way or other.

Trust Deed defines respective shares in net value of property, eg proportionate to each person's cash contribution (disregarding mortgage advance)- so whose is the £23 500? Yours or your wife's or joint?

[jingle68]

the lender has sent the offer in my name only, they have informed me that the offer is available in both names if required.
the £23,500.00 is mine, there is no financial imput from my wife.

[Tax Accountant]

the lender has sent the offer in my name only, they have informed me that the offer is available in both names if required.
the £23,500.00 is mine, there is no financial imput from my wife.

As there is no rental income profit (after expenses and loan interest) it doesn't really matter much at present in whose name the property is bought.

Assuming there are no marital difficulties now or in the future, I would buy in joint names as ''Tenants in common'' as opposed to ''Joint Tenants''. Your solicitor can explain these terms to you and their implications. This would help with equalising your estates for IHT purposes. Also you would both benefit from annual CGT exemption and equalising of CGT rates if you were to sell in the future.

Also ask your solicitor that your shares should be equal if you trust your wife implicitly. If you prefer, you could have this 100% to you and 0% to your wife. But by keeping the property in jopint names from the beginning, it would be easier to change the respective shares in the future if necessary.

It doesn't really matter that you alone are putting up the full deposit as you are a married couple.

Ramnik

[jingle68]

Also ask your solicitor that your shares should be equal if you trust your wife implicitly. If you prefer, you could have this 100% to you and 0% to your wife.

Does the share allocation make any difference to the CGT rates?
what i mean is, 99% shares to me & 1% to my wife, do we get equal CGT allowance?

Can we have 100% shares to me & 0% to my wife & get equal CGT allowance?

[Tax Accountant]

Does the share allocation make any difference to the CGT rates?
what i mean is, 99% shares to me & 1% to my wife, do we get equal CGT allowance?

Can we have 100% shares to me & 0% to my wife & get equal CGT allowance?

Quite right, the gain on the property is also apportioned in the same proportion in which the property is owned. Therefore, someone owning 0% of the property may waste all of his/her annual CGT allowance. And the one owning 100% may end up paying higher rate tax on most of the gain.

That is why I stated, and I quote: ''Also ask your solicitor that your shares should be equal if you trust your wife implicitly.''

I then went on to say: ''If you prefer, you could have this 100% to you and 0% to your wife.'' I only offered this option on the following reasoning:

It appeared to me that you were already on your way to buying the property in your own name only and/or it may be your preference to have it in your ownership 100%.

However, in this event, I expressed the option that the property should still be kept in joint names (with 0% to your wife). This course of action would make it easier and leave the option open ''to change the respective shares in the future if necessary.'' Who knows, prior to any sale in the future you may decide (of course because of your love and affection for your wife!), that you want to transfer half share in the property to your wife.

To conclude: In your present circumstances it doesn't really matter whether the property is owned by either spouse or jointly. But owning it jointly, now or at a later date, allows the use of both person's CGT allowance and also spreading the gain between the two.

Ramnik

[jingle68]

thank you for your advice, i now have more of an understanding of what to do.

[Tax Accountant]

thank you for your advice, i now have more of an understanding of what to do.

My pleasure.

Ramnik

[stephenp]

hi ramnik,
in response to the previous thread is it possible to change ownership to include a spouse say 15 years or so down the line in order to utilise a partners CGT?

Also if there is a profit on rental income does the spouse have to have a share in the property if you were to allocate sum of the rental income to them? if so does this have to be documented somewhere?

also do you have to be wed to do this?

Thanks
Steve:p

[Tax Accountant]

hi ramnik,

in response to the previous thread is it possible to change ownership to include a spouse say 15 years or so down the line in order to utilise a partners CGT?

Yes, you can do this.

But if the property has previously been the ''only or main residence of the transferor spouse but not the transferee spouse, you may lose overall by doing this due to the unavailability of the PPR relief and the letting relief to the transferee spouse.

Also if there is a profit on rental income does the spouse have to have a share in the property if you were to allocate sum of the rental income to them? if so does this have to be documented somewhere?

Yes, a spouse cannot share rental income unless they own a proportionate part of the property.

The transfer could be evidenced by changing the 'Title Deeds' or by drawing up a 'Trust Deed', ideally through a solicitor.

also do you have to be wed to do this?

No, you don't have to be married to do this.

But transfers between unmarried persons will be regarded as a sale at market value, most probably giving rise to a charge for CGT.

On the other hand, all transfers between married persons are at a value which gives no rise to any gain or loss, effectively at cost plus any accrued indexation allowance upto March 1998 (indexation ceased at March 1998).


Thanks
Steve:p

See replies above in red.
Ramnik