This question has probably been answered before but little confused so please forgive me
If wife and husband own 50%:50% of a Rental property
Can the wife who is a lower tax payer receive 99% of the rental income through a declaration of trust and submitting a form 17 to HMRC ?
Husband is a high rate tax payer
Replies (10)
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Yes, if husband is happy to give away 49% of the property to his wife. Ideally, the rent should be paid into her sole account.
SDLT needs reviewing, if there is a mortgage involved.
PPR relief for CGT could be compromised, if the property was ever their main residence.
Legal v beneficial
Beneficial ownership is assumed to follow legal ownership in the absence of evidence to the contrary. Legal ownership of a joint property will be 50/50 by default. Beneficial ownership can be altered, as already suggested, by a trust deed. Beneficial ownership will be the basis of the split for tax purposes.
What is still not clear?
I think it has been made pretty clear that beneficial ownership, not legal ownership determines the tax treatment. I think it has also been made pretty clear that beneficial ownership can be changed by a declaration of trust. Form 17 is just a means of informing HMRC that the beneficial ownership is not 50/50.
Tenants in common is to do with living in a property, not letting it out. I think you are getting confused with property owned jointly by unmarried individuals (whether a couple or not). They can agree to share of rental income as they see fit, regardless of how the ownership of the property is split.
tic
my understanding was that in order for 50:50 joint ownership to be adjusted it can only be achieved by severing the joint tenancy and enabling the legal ownership to adjusted so that H&W hold the property as tenants in common which in turn allows differing proportions of ownership - the income split must follow the capital split
Assuming
It's currently owned as joint tenants in equity, then doing a 99/1 DoT will sever that joint tenancy and create a 99/1 tenancy in common. So the answer is "yes", assuming the Form 17 requirements are adhered to and there should be no SDLT even if there is a large mortgage if you do this with an SDLT specialist.
The joint tenancy can only be severed in Equity.
@JimLittle - your original post sets out the position correctly for married couples (and Civil Partners). There is also a 60 day Time Limit for filing of Form 17 with HMRC.