Joint owners let main home whilst abroad: one name?

[ukrv]

Hi

My wife and I are about to let our main home, whilst we go abroad for a year.

The house deeds are in joint names and we currently dont have a mortgage, but will be raising a £100k BTL on the house.

We want the rental agreement to be in one name only.....

Does the mortgage have to be in the one name (of the landlord) to benefit from interest deductions ?

Thanks

Paul

[Tax Accountant]

If the property is in two names, the mortgage will also have to be in two names because the lender will not agree otherwise.

The rental agreement could be in one name only but the net income (after interest and other deductions) will still be taxed to both of you if you both are the beneficial owners of the property. If you wish the rental to be taxed to only one person, that person must also be the sole beneficiary of the property. The easiest way to do this would be by way of a trust deed through the solicitors stating that the property and the mortgage, although in joint names, are beneficially owned by only one spouse. Alternatively, you could have the trust deed state that one spouse owns the house, mortgage and rentals etc 99% and the other spouse only 1%. rental income and mortgage interest will then be split in that proportion.

Ramnik

[ukrv]

Ramnik,

Thank You for that info.

Would that Deed have any negative impact when we came to sell the property ?

Could we "tear up" the Deed or write a new one for 50/50 split later - would there be any financial penalties by doing so.

Thanks Again

Paul

[Tax Accountant]

You will need to take solicitor's advice for this. But as far as I am aware, the Deed is just an internal document between the spouses to set oout the fact as to the beneficial owners of the property as opposed to those who are shown as legal owners on the Title Deeds.

Rather than tear up the deed, it would be better to draw up another one at a later date when the situation has changed to show the new proportion in which the property is owned by the spouses.

Remember, you may heve to produce the deed to the Inland Revenue (or any other party) who may wish to be satisfied that the rental profit is being correctly declared by the beneficial owners of the property.

The deed will not have any negative impact when you come to sell. However, for CGT the property will be taxed according to whoever is shown as the beneficial owners of the property at the time of sale. Therefore, before you sell, you may wish to change the deed back to the 50:50 split or any other split which suits both parties at the time.

You need to take advice of the implications if divorce proceedings are commenced.

Also, you need to consider the IHT implications if you die after the deed has made your wife the sole owner (or vice cersa).

The joint ownership should be desirably as 'tenants in common' so that each spouse is able to 'will' their respective shares at their death to a third party to use up his or her nil rate band allowance which is presently £275,000.

Ramnik

[Yardleystar]

You should remember that tax follows ownership of an asset and though a deed may resolve income tax issues, disposal or part disposal of an asset triggers a capital gains tax event that may result in additional tax.

Ownership of rental property should also consider tax rates - if a husband and wife own a property 50:50 and the wife doesn't work but the husband is a 40% taxpayer, then he will pay tax on profits at his highest rate and his wife tax at 22%. She will have an unused lower rate banding that could soak up profits from her husbands higher rate banding and effectively reduce income tax by 18% on that proportion of profits for which the husband pays higher rate tax.

Reducing tax this way is straightforward, relatively cost effective and should be part of every btl husband and wife team's tax planning.

[Tax Accountant]

The Inland Revenue will always assume the ownership and rental income equally by all joint-owners unless and until they are told otherwise. There is a form to notify them of split in different proportions.

But the rental income must follow the ownership and therefore, you cannot have ownership equally and income split differently.

Ramnik