UK Landlord Forum / Life

Hi,

me and my wife has 2 properties as joint tenants. I am high tax payer and she is not working at the moment. We are thinking about changing it to tenants in common with more % towards my wife but not full sure about pros and cons.

at the moment, we share cost and rent income equally and I pay more tax than my wife and we need to find a way to save income tax. We may sell one of the properties in 2-3 years of time so we need to consider impact of CGT in case we decide to change to tenants in common with different percentages.

thanks

I was in a similar position when we first started letting - the difference being that I had sole legal title to the property. I just gifted a 100% beneficial interest in the property to my wife via a Declaration of Trust. She receives 100% of the property income and declares it on her tax return. There are no CGT implications for transfers between spouses so you can re-jig the split again just before you sell if need be.

Hi Simon,

thanks for your quick response.

Do I need to get a solicitor involved in the process? and what about mortgage company ? Do I need their consent ?

thanks again

We used a solicitor: we were getting our wills done anyway and it was only a couple of hundred quid. You can download a template and do it yourself but then you're effectively relying on the advice of some random bloke on a web forum, so you've only got yourself to blame if it all goes tizzup, You'll get back what it costs you in a couple of months of tax savings anyway.

As I understand it, you don't need to get your mortgage provider involved as you're not changing the legal title and their charge over the property remains as it was before.

Hi,

I was doing some more research on this and learnt that thus might trigger a stamp duty tax depending on the amount ? if this correct?

thanks

Yes, you could potentially end up with an SDLT charge but it's usually avoidable with a bit of care. Stamp duty is calculated on the consideration actually paid, so if it's an outright gift, there's no stamp duty due (it's not one of those situations where market value in an arm's length transaction comes into the equation). Be careful, though, if you also "gift" your wife an extra slice of the outstanding mortgage debt. That would be deemed as her giving you consideration amounting to that sum. Also she might make you sleep in the spare room for giving her such a crappy present!

Thanks for your quick reply. Is this clarified (outright gift? ) on the deed of trust ?

I assume we have to severe joint tenancy first ? then have a tenants in common with different %s ?

Is it worth to get some tax planning advise ? Or the process is really simple ? what about CGT in case we want to see this in a few years time ?

kr

From what I recall, yes, in my case the declaration said that I freely gave the property to my wife, no strings or liabilities attached. In our case I'd previously owned the property outright so there was no previous arrangement to dissolve or otherwise.

I'd recommend taking professional advice: this sort of thing is bread and butter to them and you'll save the cost in a matter of months. There's no CGT on transfers between spouses but you may wish to transfer a bit back immediately prior to selling, so that you can use both your CGT allowances.

I made my wife work harder to get a promotion, and more pay (actually, I even made her move companies, and towns) so she could be in the same tax bracket as me. Seems like tough love, but it simplified things... and I didn't need to have to worry about any of this stuff. And, to boot, we are actually both better off anyway... I did a spreadsheet, it's true. Yeah, she may not be as happy in her new role, and company... and it's a longer commute, but she understands that sacrifices must be made. Keep things simple.