Client purchased rental property in sole name.
Now that he is becoming close to being a higher rate tax payer he has brought a declaration of trust document which he has drafted himself saying that he wants the capital to be held 50:50... But rental income is to be split 99:1 to his wife as she has only minor income.
Obviously I would suggest that legal advice is taken but surely you can't hold capital half each and income in a differing percent?
They are married as I am aware of the fact it can make a difference!
Thanks
Replies (7)
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Need to be tenants in common
Also the income follows the beneficial ownership, which is what the declaration of trust would normally vary. So no.
Only a problem with marriage/civil partnership. Other property partnerships can profit share as they like.
Nothing in law
Stops people having joint (or p-ship) property with different capital/income shares per the link below:
http://www.hmrc.gov.uk/manuals/pimmanual/pim1030.htm
The probem here is settlements legislation &/or s809aza ITA 2007 (tsf of income streams). I don't think having a H&W p-ship solves the problem.
http://www.taxation.co.uk/taxation/Articles/2012/02/08/35621/jointly-held-property
If you tsf 99% income & capital then that s/be OK.
Nothing in law?
ITA 2007, section 836 is clear that married couples are taxable 50:50 on income from any jointly held assets, except in certain specified circumstances, which include making an election (on form 17) under section 837.
Section 837, in turn, is clear that in order to make the election the beneficial interests in the income and capital have to be the same.
So whilst you can do what you suggest legally, it will not then have any effect for tax purposes. PIM1030 mentions that. It does not touch the settlements legislation.
Yes nothing in law
Only certain contracts are void/unenforceable in law, such as contracts to do illegal acts, contracts void for uncertainty etc.
Make it easy and transfer the property to the wife completely (might incur stamp duty).
Alternatively add her to the deeds and make it 50/50 ownership.
Take a look at the usage of capital- it might be better to remortgage and add another property, reducing the rental yield that incurs 40% tax by buying the next property solely in the wife's name.
Or set up a property management business, etc.
There are many ways that the client could benefit from some pro active advice.