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Transferring interest in property to spouse and rental income via Form 17 and Declaration of Trust

Hi all,

I have a client who owned his own house via a mortgage before his then partner moved in with him. They married, still live there and are thinking of moving house and renting the old one out.

From what I understand, the hubby could complete a declaration of trust now to give his new wife benefical ownership of a ratio of say 70:30. By doing this, and then submitting Form 17, the rental income would be treated as being split in that ratio and the couple benefit from two sets of letting relief, PPR exemption and CGT personal allowance when the property is sold.

I have read somewhere however that the couple have to be tenants in common (joint legal title no?) before altering ownership by a declaration of trust, for the Form 17 election to be effective under I think S282B ICTA 1988. Is this correct, or will the declaration of trust do the job without bothering the mortgage company?

Or is there another way of the client achieving two sets of CGT exemptions and splitting rental income without the legal shenanigans that gainfully employ solicitors that I am forgetting?

I've been going round in circles with this one. Sorry, and thanks for any help!

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09th Sep 2010 09:21

Read the Form 17

It states 'We declare the details above correctly state our beneficial interests in the property described, and the income arising from it, and that the property is held in our joint names'.

You need to sever the sole ownership via a TR1 and either use tenants in common shares or joint ownership and a Declaration of Trust. Tenants in common can be used to apportion the properties legal and beneficial ownership from 1 to 99 to 99 to 1. However this also means that a 'Will' will  have to be used to direct that share to a the chosen beneficiary. Very important. Joint ownership between spouses defaults the ownership to 50/50 and that is how you have to split the rental income for HMRC. However a Deed of Declaration can be used to declare the beneficial ownership of your choice. Should anything untoward happen to a spouse the property automatically passes to the surviving spouse as do any qualifying relief. This clearly can be advantageous from an IT point of view but beware, if you dispose of the property you have to ensure that the lower share own, who would still get the full CG Allowance of £10,100 would have enough taxable gain to use up all or most of the gain. This would not be 1% but you can re-address the declaration of trust to account for this a couple of months prior to any contract of sale. ( Exchange of Contracts ) You must make this change whilst you are living together in the property or the transferred portion from the husband will loose PPR and Letting Relief in the future.http://www.hmrc.gov.uk/manuals/cg4manual/CG64950.htmAllow plenty of time for the required changes to be made and registered with the LR and HMRC. Regards Peter

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