Updating post from Reddit.
I own a rental property solely in my name for last 8 yrs or so (purchased prior to getting married).
Submitted form 17 to HMRC to split rental income (most of it goes to Mrs as I'm in 40% tax bracket).
Time has come for mortgage renewal and I am wondering is it worth putting the Mrs on the deed? Mortgage is approx 100k (less than 35% LTV) so despite her lower salary, lender wouldn't have an issue.
Wondering whether it's beneficial to add her to the deed as if I dispose of the property, I wouldn't be able to claim her CGT allowance?
If the plan sounds sensible, what would the process be? Apply for a new mortgage as joint tenants in common?
If anyone has done something similar, would be interested in finding out how to go about it.
Thanks!
Form 17 is only applicable if you have a formalised Deed of Trust giving your wife a beneficial interest in the property in whatever agreed unequal split you have decided. i.e. You agreed a 75/25 split so your wife then receives 75% of the rental income and you receive 25% of the rental income. You would then both fill out your annual tax returns in the same man’er with all income and outgoings split the same 75/25 way. This is what Form 17 reflects.
There is no need to update the title if you dont wish to as her beneficial interest now exists, in effect she owns 75% of the property, (beneficial interest applies to the property, not just any income from the property) and in the event of either of your deaths, her 75% beneficial interest in the property simply becomes part of her estate. A DoT cannot be revoked unilaterally, so shes secure that say in the event of divorce, you wanted to just change your mind and reverse it, you cant.
So going forward, you will have to declare the DoT and your wifes beneficial interest in the property to your mortgage lender (its irrelevant if shes named on the title) and also CGT will be applied to the same unequal share of ownership if you both decide to sell.
Thanks for your detailed reply. I will get in touch with my accountant who initially set this up a few years back but vaguely recall a separate declaration of trust being drawn up. If one was submitted accompanying form 17, does this make this valid even if she wasn't on the title deed at the time(and still isn't)? It was suggested by the accountant so I am hoping I haven't been wrongly advised.
A Deed of Trust is used to specify the ownership and beneficial interest on a property. It has nothing to do with who is named on the title deeds, as like a car registration document, the named person may not in fact be the true legal owner. This is very common in large properties or estates where there are many beneficiaries to a property through say inheritance, but the executors or trustees are required to administrate the estate/property. The title deeds are registered in the executors names, however they have no legal right to ownership or any proceeds from the estate. but it enables them to divide, dispose or sell the property if required. What doesnt happen is 14 grandchildren get named on the title deed, they are simply the shared beneficiaries and own 1/14th of the property as specified in the will.
Your accountant will have explained this at the time. The title deeds and the fact they are currently in your sole name is irrelevant where a deed of trust transferring ownership of a portion exists. In many cases, husbands often transfer 100% beneficial interest (ownership) to their spouse as it of course then simplifies 100% of the rental income/outgoings go to the lower tax banded spouse and she is solely responsible for all tax due.
However, difficulties arise if you havent notified your mortgage provider (if you have a mortgage as in your case that may be in your name and not a joint mortgage with your wife) as of course you have a mortgage against a property you may have no ownership claim over.
Creating a Deed of Trust to benefit from some tax relief is not an insignificant action to take, and it can be tricky to reverse it.
In short, there is no requirement to update the Title deeds with your wifes details, as she has a deed of trust which shows her assigned ownership. However your mortgage coy may demand you do so, but it depends what percentage youve signed over and if you still have a significant/insignificant interest in the property versus the amount mortgaged.
F17 can only be used if a DoT exists specifying the unequal split in ownership so this will have been submitted to HMRC at the time.
Again to your original Q and CGT, title deeds are also irrelevant to capital gains etc as HMRC merely treat the property in the shared ownership ratio that youve assigned throught the deed of trust.
As above your form 17 is not valid - it can only be based on actual beneficial ownership, and in the same proportion as that ownership. So far you have I am afraid been engaging in tax fraud...
you happy with her taking at least 50% of it in divorce?
She will anyway deeds or no deeds it’s all up for grabs.
not premarital asset
I fear that boat has sailed if OP has done a DoT.
If mrs will assume responsibility for all or part of the mortgage this is consideration for SDLT. The surcharge will likely apply if the debt assumed is more than £40,000.
There is no SDLT spouse exemption like for CGT.
Also agreed with others. Form 17 should be evidenced that beneficial ownership is in unequal shares (i.e you need a declaration of trust). Check this with your accountant to make sure this was not missed at the time.