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Transferring rental income to spouse?


bigdreamsp

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I'm in the process of transferring our BTL to joint ownership (not tenants in common) with my wife. I would also like to transfer 99% of the rental to my wife who is a basic rate tax payer.

There is so much conflicting information online about transferring rental income so wanted to see if I can get a definitive answer from someone who has been through this process. 

I am aware there are certain forms that can be used to do this, but would really appreciate if someone can clarify how to do this exactly. 

 

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I'm not an accountant, and I'm sure one will be along to correct any mistakes I make if I'm wrong, but my understanding is that for a normal BTL not in a limited company the rental income must be split in the same proportion as ownership, so to split it 1:99 with your wife, you'd have to move to tenants in common and own the property in that proportion, which then might give you problems with the mortgage if there's one on it.

If you switched it to serviced accommodation/holiday let then you can split the income in any proportion you like as it's considered a business rather than an investment.

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Thank you both for the replies. This is very helpful.

My solicitor handling the transfer of equity unfortunately does not deal with the splitting of rental income (form 17) etc. I wondered if this is something i can do myself? If so are there any instruction that i can follow? Also, are there any other considerations like a trust or anything else i need to be aware of?

 

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  • 4 weeks later...

Could a declaration of trust with your wife work?

Someone had mentioned to me that a declaration of trust document can be a way of showing that a property is being held in trust for the benefit of another person or individuals including cash/income. I'm not sure if this is correct or what the legal implications might be, but someone on here might be able to rule it in or out as an option? 

I'd be interested to see how this plays out as I am in a similar position.

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You can use a declaration of trust with your wife to ensure that she is taxed on more of the rental income, so a 99% / 1% split but you do both have to legally be owners of the property.

You cannot simply hold the property yourself and use a Declaration of Trust to say that your wife receives all of the income. HMRC are very clear in their procedural manuals that this scenario is caught under the Settlement Legislation and is not effective for tax purposes.

Alison Ward
Accountant & Client Manager

www.propertyhub.net/service/tax/

03_tax.png.6f4d9a5b7961f51a3bd16a0ac9912efe.png

 

 

 

 

We can only give general information on a public forum, and nothing in this post should be interpreted as advice. To speak to us about becoming a client and receiving bespoke advice, call us on 020 3936 2170 or email tax@propertyhub.net

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Alison Ward
Accountant & Client Manager

www.propertyhub.net/service/tax/

03_tax.png.6f4d9a5b7961f51a3bd16a0ac9912efe.png

 

 

 

 

We can only give general information on a public forum, and nothing in this post should be interpreted as advice. To speak to us about becoming a client and receiving bespoke advice, call us on 020 3936 2170 or email tax@propertyhub.net

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  • 2 weeks later...

 

 

On 5/24/2019 at 1:36 PM, debbie franklin said:

Ah this refers to the transfer of income only not the beneficial interest under a DOT.

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9928

This second example from HMRC concerns Civil Partners and is clearer in this example that HMRC considers that even if a DOT has been drawn up effectively transferring a beneficial interest it would not be effective for tax purposes unless the property was jointly owned.

 

Alison Ward
Accountant & Client Manager

www.propertyhub.net/service/tax/

03_tax.png.6f4d9a5b7961f51a3bd16a0ac9912efe.png

 

 

 

 

We can only give general information on a public forum, and nothing in this post should be interpreted as advice. To speak to us about becoming a client and receiving bespoke advice, call us on 020 3936 2170 or email tax@propertyhub.net

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  • 10 months later...

 

On 6/6/2019 at 8:09 PM, debbie franklin said:

still refers to interest in income only being transferred not beneficial interest in capital 

Yes. As the original question seemed to be about income tax. What I take from Alison's advice here is that, in order for shared rental income (50-50, or whatever split) to be taxed in the same way, one of the things that needs to happen is that the legal ownership - not just the beneficial interest - needs to held jointly. There's lots of advice about the legal transfer side of things online, but her advice (and the link to HMRC) is the clearest I could find that just transferring most/part of the beneficial ownership for a property doesn't mean you relinquish being taxed on that income. Or maybe I've misunderstood...

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