Declaration of Trust

Declaration of Trust

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Good Morning All,

Can anyone confirm if HMRC are likely to challenge a couple who want 100% of their rental income on a foreign holiday let property and a UK rental property to be attributable to the husband?

We have advised the client to arrange for a declaration of trust to be drawn up by solicitors, so that we can complete a form 17 for HMRC.

Many Thanks!

Replies (7)

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By thatsnumberwang
23rd Jul 2015 12:40

I can't tell if I'm asking extremely thick questions, or no-one knows the answers?!?!

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Portia profile image
By Portia Nina Levin
23rd Jul 2015 12:40

There are people that know the answers

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By ireallyshouldknowthisbut
23rd Jul 2015 13:18

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Like me! Possibly.

Assuming its jointly owned by a married company, you can certainly vary the %'s away from the default 50:50.  

My non-tax god understanding was they both had to have some share.  So you could split 99%:1% for instance.

Portia may know different, what with actually reading the legislation and stuff. 

 

 

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By thatsnumberwang
23rd Jul 2015 13:37

Thank you!!

I was beginning to feel paranoid that everyone was ignoring me due to sheer volume of stupid questions I post!

Thank you for your help!

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By SimonLever
23rd Jul 2015 13:54

Underlying ownership

The income on property is taxed as 50:50 for husband and wife by default if there is joint ownership.

If the underlying ownership is in a different ratio then the income can be assessed on the basis of the underlying ownership by submitting a form 17 to HMRC.

You will probably need some form of proof to confirm the underlying ownership percentanges.

You cannot have any other split of income.

If you draw up a declaraton of trust that the husband owns 100% of the property then will recevie 100% of the income. However he will also be laible for 100% of the capital gain on disposal so think carefully about whether this would be best in the long term. 

Also get a solicitor to draw up the deed of trust. Let his/her PI cover this, not yours.

 

 

 

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By ireallyshouldknowthisbut
23rd Jul 2015 14:44

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@ Simon, you can vary the capital and income, the shares do not need to be the same, so long as the deed of trust you draw up reflects these differences. Most of the solicitors templates I have seen have pre-configured boxes to treat each side differently. 

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By Portia Nina Levin
23rd Jul 2015 14:54

If the asset is in held joint names

The income is split 50:50, unless you use form 17, when the income allocation MUST follow the beneficial ownership (ITA 2007, section 837(1).

If the asset is held in just one name, but there is a deed of trust then allocating beneficial ownership and income differently and perhaps different for income and ownership, then secttion 836 does not apply, and tax follows entitlement to the income.

However, HMRC can then attack using Chapter 5A of Part 13 of ITA 2007, in my view. Justin Bryant does not agree with me, but I am not sure that he is all that bright.

EDIT: I retract my earlier post.

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