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Intro and some questions on Ltd Co, Deed of Trust and Property Partnership!


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Hi good afternoon everyone,
 
Name is Paul and I've been in property since 2011. I started by renting out and managing my property myself, becoming NLA accredited and have moved to a more passive strategy using a managing agent. I've enjoyed all aspects and have now built up 4 properties. I still manage one of them but as I live 300miles away the remainder are fully managed by a local letting agent.
 
We are a married couple and my wife is no longer a 40% tax payer for the foreseeable future (actually her earnings will be less then 3k) but I will remain a higher rate tax payer.
 
We currently owm our properties with the following ownership structure:
 
2 in higher rate tax payers name.
1 lower tax rate payers name.
1 in joint names with the intention of getting a declaration of trust and form 17 for more favourable rental income benefits.
We are also looking to purchase two further properties in the next 6 month's. 
 
My intention is currently to use a DoT for the 2 properties currently held in legal ownership in my name and for the one in joint names to bring the beneficial ownership to 1:99% in favour of lower tax payer.
 
Can anyone confirm that a deed of trust is valid for transferring beneficial ownership in these ownership circumstances? There's a lot of conflicting information online but this seems to be the best solution for us until we can incorporate using the rules of property partnership to minimise SDLT and CGT.

Thanks,
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Thank you Debbie. Getting into the details now, I'm content that the jointly owned one is easy (sever joint tenancy to tenant in common, DoT and form17 to HMRC). The ones that I'm still wanting to clarify are the two owned by me in legal title. With reference to SDLT, do the following rules still apply even though it's a BTL?

 

Property held in the sole name of A. There is a mortgage secured on the property. A transfers a share of the property to B in consideration of a payment by B and they enter into Deed of Trust to record that the property is now held jointly. 

 
If the payment made by B plus 50% of the mortgage debt is less than £40,000 then no SDLT return would be needed.If the payment from B plus 50% of the mortgage debt did exceed £40,000 then an SDLT return would be required. However in this scenario no tax would be payable unless the current threshold was exceeded (£125,000).

 
Do these numbers still apply if it's a BTL?  Or will this incur 3% stamp duty?
 
I.E 
 
1 of the properties had £43,000 mortgage so 50% plus zero payment by B equals £21,500 so no SDLT return required. 
 
Other property has £105,000 mortgage, zero contribution and zero contribution by B equals £52,500 so a SDLT return required but as it's under £125k no stamp duty to pay? Does this still apply to BTL property? Thanks!
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From Property118 I believe the following applies:

From: https://www.property118.com/declaration-of-trust/93073/

 

"Note that SDLT is only payable on transfers over £40,000 and that you also have an annual CGT exemption allowance to utilise. As of the Autumn Budget 2017 the additional 3% Stamp Duty rate is not applicable to transfers between spouses. Accordingly, spouses can transfer up to £125,000 between them without incurring CGT. Furthermore, the transfer value is calculated on the mortgage liability transferred between spouses and not the property value."

 

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Hi PandM,

First caveat - just like you I am a landlord/property investor and not a qualified specialist. As a result, I cannot offer real guidance but I will share my experiences that are not too dissimilar. After this maybe google some of the key parts from my response to further research what is / is not allowed.

 

1) I assume you will transfer the legal title into Joint Names and hence add your wife to the mortgage? If not, I am not sure whether HMRC will allow you to transfer the a portion of beneficial ownership to your wife - you would need to consult a specialist if that is your plan.

 

2) Assuming you are adding wife to the mortgage and title (as Tenants in Common) then the amount of consideration (by way of mortgage debt) is the same proportion of the property that you gift to your wife and not a straight 50%. I.e, if you want her to be 40% owner tenant in common then it's 40% of the mortgage debt that is consideration. This is exactly what I did 4 years ago with a good conveyancer executing the transaction and filing the SDLT01 form. 

 

3) I agree with your note that SDLT liability would appear to be at "normal rates" between spouses and not with the 3% surcharge since Nov 2017 and hence up to £125,000 consideration it would be below the threshold at which payment becomes due. (But please note that if the consideration is over £40k then you still need to file SDLT01 form and you may need professional help to do so as it does not look trivial)

 

Given I assume you are adding the wife to the mortgage, I expect the acting conveyancer can do all the paperwork anyway (as did mine) in any case. If you find a good conveyancer, he might be able to guide you before instruction / starting the mortgage side of the process.

 

I hope this helps. I came across this site a few weeks ago - it seems reasonably priced and the FAQ is quite useful.

 

https://www.deedoftrust.co.uk/

 

Cheers

Dean

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Hi Dean,

 

I've been in comms with deedoftruat and they've been very useful. 

 

I th I k there are a few things that you've misunderstood.

 

The currently jointly held property will be changed to tenants in common and then a DoT used to divide the beneficial ownership to 99:1.

 

The ones that the legal title is in my name only will not have this changed or the mortgage. It will be the beneficial ownership not the legal title and therefore no requirement to change the mortgage. I could place a restriction on the title however this is not mandatory and for this case between spouses is not applicable to me. I believe this is a legal and sound route for using my wife's income tax allowance and as they will both be under 125k no SDLT, but a return for the one that is above 40k as you point out.

 

I am looking at having the tax consultation with Propertyhub anyways to confirm that this is the best strategy.

 

I look forward to further replies though as I think this is an underused strategy and should be discussed further!

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From property118 website: 

 

Where property is owned by one person a Declaration of Trust can also be used to split the beneficial ownership. In that case Form 17 would not be applicable but HMRC would need to be informed of the arrangement and you would each need to complete tax returns for your share of rental profits in future years.

 

Yet I keep getting told this is not possible! I've now booked a Propertyhub Tax consultation.

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  • 1 month later...

Hi guys, good discussion here. 

I have a property in joint names -my wife is a Lower rate tax payer, and hence we thought of splitting it in 1:99 so that its tax efficient via deed of trust. But our accountant said if you did that i have to also transfer the mortgage in my wife's name for the same percentage (99%), and hence will incur SDLT.

Is he correct, or can we use the Deed of trust please?

Many thanks

Suresh

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I've done exactly this and all approved by HMRC. SEV form to change to tenants in common. Form 17 and a deed of trust to declare unequal income. If the share is given as a gift between spouses then SDLT doesnt apply, however if your partner is giving cash to take on that share (of mortgage debt) or the transfer is not a gift then SDLT return required above £40k but not paid until the threshold of £125k. So remember that for a change from 50:50 to 99:1 a share of 49% of the mortgage debt is been transfered and it's this consideration that is used for SDLT calculations.

 

The additional 3% rate of stamp duty doesn't apply to transfers between spouses since the Nov 17 budget.

 

Non of this is advice but just my reading and understanding of the legislation. I would recommend checking out property118.com. 

 

Some links:

https://www.property118.com/help-passing-property-rental-wife-tax-purposes/

 

https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

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hi MVP properties, many thanks for your reply.

so, we have the property in joint names, so I guess its tenants in common.

If I give the 99% share of the house as a gift to my wife, and then do a DoT and form 17 - I don't need to pay any SDLT. Am I correct in assuming this?

I found this in HMRC website as well-

If the larger share is given outright as a gift

If you take a bigger share but don’t pay anything in return, there’s no ‘consideration’ given including taking on liability for a mortgage. You won’t pay SDLT, even if the value of the extra part of the share is more than the SDLT threshold. You don’t need to tell HMRC about the transaction

 

What do you think please?

 

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  • 3 weeks later...

Hi Vaithy, PM'd you. Let me know how you get on. 

Just something I've spotted in your post, Just because your joint tenants does not mean you are tenants in common. They are two separate things.

 

This might help:

 

https://www.gov.uk/joint-property-ownership

 

Apologies if I've read your post wrong and you already understand the different between joint tenants and tenants in common but they are treated differently (in mamy way and for your purposes and for what you need to achieve you need to be in tenants in common.

 

Happy to discuss further if needed.

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  • 5 weeks later...

Hi Paul

Thanks. sorry missed this post.

i have asked my accountant to look at the deed of trust and form 17 for me.  But he did question couple of things:

1. do we have to inform our mortgage lender?

2. Also, if the mortgage is due for renewal, with my wife being a low income earner, how will the mortgage approval work for her (or will it be affected at all please)

Many thanks

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  • 1 year later...

@MVP Properties did you manage to allocate your spouse the rental income from your solely owned properties via a DOT?  Like you said, I have read completely conflicting advice and the scenario seems fairly simple. 

Mine is 1 rental property solely owned by myself (from before marriage), still mortgaged, my spouse is a low rate tax payer and I wish to move the rental income onto her, preferably without affecting my mortgage (e.g. no change in legal ownership).  SDLT and CGT don't seem too bad given it would be a gift and/or between spouses.

If you did this, or something like it - can you let me know some of the missing details and who you used for advice/DOT?

Thanks! 

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