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Declaration of Trust: Can do 99.99%/0.01% split or only 99%/1%?


michael-a

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Good evening,

My wife and I have bought a BTL property and we are looking to sign a declaration of trust which assigns at least 99% of the rental income to her and 1% to me, as she is in a lower tax bracket than me. The common way of splitting the rental income for tax purposes seems to be 99%/1%, but I was wondering if HMRC will also accept a 99.99%/0.01% split. I'm asking because we are planning to buy more BTL properties later on and over the years the tax difference on that 1% of rental income could actually have some impact over the years. So if possible I'd rather save that tax.

I have tried out HMRC form 17 here and it seems to accept a 99.99% entry: https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/SpecPersTax_iForms/1.0/17&template=17.xdp

Michael

 

 

 

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There are better more flexible ways to achieve your goal without making a declaration that your wife has 99.99% of the equitable interest in the property. The form won't stop you from making a declaration that your wife has a 100%. You may want to consider a partnership or a company as a more flexible way of managing assets and income. 

 

Jerome

Jerome@TaxAntics.co.uk

www.TaxAntics.co.uk
 

 

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Thanks taxantics for the advice. For now, given it's just one property, the costs and complexity of e.g. setting up and maintaing a company likely exceeds the benefits.

But I'll definitely consider other structures for further purchases.

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I understand the additional cost that comes with corporate routes which is why I suggested a partnership as a more flexible way of sharing income in a way that doesn’t follow the equity. 

Jerome

Jerome@TaxAntics.co.uk

www.TaxAntics.co.uk
 

 

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On 4/9/2021 at 12:06 AM, michael-a said:

Thanks taxantics for the advice. For now, given it's just one property, the costs and complexity of e.g. setting up and maintaing a company likely exceeds the benefits.

But I'll definitely consider other structures for further purchases.

You may be surprised how easy it is to set up a company.  Your accountant can do it for you in no time at all.  We have 3 BTL where I own 1% of each property. Or I own the keys to get in (joke).  The rest are now in a ltd company.   We took advice from the property hub tax accountant and it’s worked out very well. Things to look out for in ltd company is higher mortgage and mortgage set up fees but the that’s offset by the tax savings and worth doing in my opinion.   Good luck with on your journey   Stephen 

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  • 2 months later...

Hello everyone,

I am new to this HUB and was pleased to see this question as I assumed that only an accountant would know for sure . My partner and I have a BTL mortgage approved and we have to decide if we should be joint tenants or Tenants in Common with the majority ownership  for me due to tax implications .

My linked question is if we have a tenants in common ownership ( for example 95 to 5% split) are we both entitled to the full Capital gains allowance if and when we sell? 

Looking forward to some feedback.

Thanks 

Sue 

 

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Are you married or in a civil partnership? If so if you own property jointly then it is assumed you are entitled to a 50:50 income split from a tax perspective.

If you want to split income and gains differently to this then you would need to make a joint property election by signing a deed of trust and submitting to HMRC a form 17 within 60 days of signing the DOT. The property would need to be purchased as tenants in common.

 When you come to sell the property your respective chargeable gains will be calculated depending on the beneficial ownership as per the DOT ie 95:5. This amount will be reduced for each of you by deducting your annual exempt amount (£12,300 each).

 

 

 

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David M Slater ACMA 
Accufy Accounting
01946 552801
  david@accufy.uk
  www.accufy.uk
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  • 2 months later...
On 6/25/2021 at 8:52 PM, david slater said:

Are you married or in a civil partnership? If so if you own property jointly then it is assumed you are entitled to a 50:50 income split from a tax perspective.

If you want to split income and gains differently to this then you would need to make a joint property election by signing a deed of trust and submitting to HMRC a form 17 within 60 days of signing the DOT. The property would need to be purchased as tenants in common.

 When you come to sell the property your respective chargeable gains will be calculated depending on the beneficial ownership as per the DOT ie 95:5. This amount will be reduced for each of you by deducting your annual exempt amount (£12,300 each).

 

 

 

Hi david,

On this, if you can split income and gains differently, do you know how you would set this up to ensure that in separation etc 50/50 applies. I have had advice from my solicitor that i cant have my cake and eat it, i cant offset declaration of trust and as a result income in favour of my wife, but then claim back 50/50 ownership in event of separation / divorce or property sale.

thanks

 

 

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On 9/3/2021 at 3:20 PM, ayns said:

On this, if you can split income and gains differently, do you know how you would set this up to ensure that in separation etc 50/50 applies. I have had advice from my solicitor that i cant have my cake and eat it, i cant offset declaration of trust and as a result income in favour of my wife, but then claim back 50/50 ownership in event of separation / divorce or property sale.

 

 

I had the exact same question and a barrister advised me that upon divorce, the courts typically look through these arrangements and understand that it was all done for tax purposes and not for "love and affection" but the facts of my case may be different to yours, so worth exploring further if you're concerned! 

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