I am reviewing a husband and wife client's tax position, specifically buy to let rental income following the husband's move into the higher rate band. We are looking to put a declaration of trust in place for the equity held in the husband and wife's buy to let portfolio to transfer the equity and right to future rental income to the wife who is a basic rate tax payer. My question is on the mortgage interest. The mortgage is currently held in both names and my intention would be to leave this as such. However, question 1, is this likely to breach the mortgage terms in anyone's experience and question 2, if not, does any one have any experience on the deductibility of the mortgage interest. As the mortgage is in both names, could the wife claim 100% as wholly for the buy to let portfolio or would this need to be split 50/50 with the husband receiving limited relief as a result of him being a higher rate tax payer. Many thanks.
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The basic question is covered regularly. Not totally sure I understand your angle exactly.
As far as mortgage terms are concerned, I think previous responses have been quite "relaxed" (which I took to mean don't ask the question). I'm not sure that the DoT could compromise the lender's security, but you could ask the solicitor who drafts it. Whether the mortgage terms are breached is probably a moot point as long as the borrower continues to service the loan.
Previous posts on the topic I have interpreted as splitting the net-of-interest profit. Thinking about the new regime starting next year for BTL mortgage interest, that may no longer be the case.
EDIT: https://www.taxation.co.uk/Articles/2016/01/26/334258/anything-declare
This is maybe your equity point:
"If there is a mortgage on the property care must be taken only to transfer the net equity between the couple. Not only is a transfer of the mortgage interests likely to breach the terms of the mortgage with the lender, but being a transfer of an interest in land it could also trigger a stamp duty land tax (SDLT) liability if the sum outstanding is more than £125,000."
