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Best option to transfer income to spouse

Tenants in common or declaration of trust?

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We are lucky enough to keep a property that was once my husband’s main residence for 9 years.  He is the sole legal owner and I have never lived in the property. Since mid 2016, the property has been rented out and the income declared on my husband’s tax return. He is a higher rate tax payer, while I am paying tax at basic rate.

We are looking at possible options to migrate this rental income to myself, so it would be taxed at my basic rate, but also retaining the 9 years PPR. From researching online and reading through the many forum’s highlighting this issue, I have concluded there are 2 possible options.

Option 1
To hold the property as tenants in common. Submit form 17 along with the delaration of trust to HMRC to split the beneficial ownership - 1% to my husband, 99% to myself. Any rental income is taxed according to this split. Before sale of property, we will submit another form 17 and declaration of trust to reverse the beneficial ownership. So my husband can retain 99% of the 9 years PPR against the gain.

Option 2
Legal title remains with my husband. We enter into a declaration of trust under which he transfers 99% of the beneficial interest to me, therefore he owns 1% and I own 99%. Any rental income is taxed according to this split. Prior to sale, my 99% interest will be transferred back to my husband, so he is able to use the full 9 years PPR against the gain.

For option 2, can we create this type of declaration of trust by ourselves and do we need to submit it to HMRC?

I want to know which option is viable and most importantly have I missed out any points that would be a deal breaker.

I will be most grateful for any advise on this matter.

Kind regards,
Rachael

Replies (18)

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By Accountant A
16th Oct 2019 01:07

Have you tried the HMRC helpline? They are pretty good at giving free tax advice.

Unfortunately, accountants (the target audience for the site) want paying! Imagine that! Expecting to be paid for giving valuable professional advice!

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RLI
By lionofludesch
16th Oct 2019 08:14

This is far too complex to be relying on an internet forum.

Be sensible.

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By Tax Dragon
16th Oct 2019 08:50

I think you are in danger of reaching conclusions without understanding the issues.

Bear in mind too that (the) law (governing the issues) changes.

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By The Dullard
16th Oct 2019 11:10

How much tax will you save?

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By Justin Bryant
16th Oct 2019 11:52

I think Option 2 should work OK and a two simple DoTs should do the trick. You need to be careful re any mortgage re SDLT.

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Replying to Justin Bryant:
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By Tax Dragon
16th Oct 2019 12:06

But if you were a tax advisor (OP - he's not), you'd realise that there's a better alternative.

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Replying to Tax Dragon:
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By The Dullard
16th Oct 2019 12:16

Does 6/4/20 come into it?

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Replying to The Dullard:
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By Tax Dragon
16th Oct 2019 12:20

Well, we know that Justin doesn't understand what's happening then. (Does the OP, do you think?)

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By Racheee
16th Oct 2019 12:46

There is no mortgage tied to this property. Any income taxed on me would be at 20%, but my husband will pay 40% plus gradually losing his personal allowance.

I know that the additional final period exemption for PPR will be reduced to 9 months (we have no plans to sell any time soon, so this could be down to 0 months) and lettings relief will not apply.

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Replying to Racheee:
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By Tax Dragon
16th Oct 2019 13:03

No-one here is stopping you do your own tax planning. (Obviously we could not, even if we wanted to.)

We just all (probably even including Justin, if he was honest) think you would benefit from paying for some advice.

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Replying to Tax Dragon:
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By Racheee
16th Oct 2019 13:22

Yes, we will look for paid advice. I just wanted to be sure I am aware of the options before I speak to a property tax advisor.

Thank you.
Rachael

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Replying to Racheee:
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By Justin Bryant
16th Oct 2019 14:30

The other option is a p-ship, but that can cause SDLT issues when adjusting income profit shares and is a bit OTT anyway in your case. You can contact me at www.ated.co.uk .

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Replying to Justin Bryant:
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By Tax Dragon
16th Oct 2019 14:38

Justin Bryant wrote:

The other option is a p-ship, but that can cause SDLT issues when adjusting income profit shares and is a bit OTT anyway in your case. You can contact me at www.ated.co.uk .

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Replying to Racheee:
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By Tax Dragon
16th Oct 2019 14:38

Racheee wrote:

Yes, we will look for paid advice.

Good plan.

I wouldn't normally do this, but he is rather asking for it... I'd suggest not taking advice from someone who
a) isn't a tax advisor
b) doesn't (begin to) understand the 6/4/20 changes
c) tries to feed you some BS about a p-ship and
d) keeps editing his (or her) posts

Not that you'd be that stupid anyway.

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Replying to Tax Dragon:
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By The Dullard
16th Oct 2019 15:04

Can you and Justin please just get a room!

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Replying to The Dullard:
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By Tax Dragon
16th Oct 2019 15:14

Don't think I wouldn't.

But he prefers Wilson. They've already taken their gloves off.

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Replying to Tax Dragon:
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By unearned luck
16th Oct 2019 23:27

Re item a) I think that people who give bad advice are still advisers.

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Replying to unearned luck:
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By Tax Dragon
17th Oct 2019 06:38

I've not seen (to my knowledge) the advice of anyone in this forum outside of this forum. Comments made in here (other than the oft-repeated "get an accountant" type rematks) are not advice. There are very few, if any, of us that comment on a reasonably frequent basis that haven't said something stupid. (I can think of a few that have probably even sung it :-))

It is particularly stupid though openly to display ignorance in a pitch for business. Something about that got my donkey. (Curiously, he doesn't know when to shut up either.)

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