Can a Declaration of Trust be used here?

Couple own a residential property but want to transfer right to income but retain capital ownership

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I have a husband and wife client who currently reside in a residential property that they are now looking to let.  They have lived there since purchasing a number of years ago and are now looking at moving but want to retain ownership and rent the property.  There is a mortgage on the property.

From my understanding, a declaration of trust can transfer the right to income from one party to another but both have to be current owners of the property.  Is this correct? Which would then not make this possible down that route, so wondered if there were any other trodden paths I could look at.

The purpose of this question (as I'm sure many of you will have clocked by now) is to take their rental income away from their higher rate earnings and retain the profits in a company and leave them there for a rainy day.  

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By The Dullard
11th Aug 2023 00:01

No, your clients can give away the right to the income to a person that otherwise has no interest in the property using a deed of trust if they want to. They'll still be taxable on the income, if they transfer it to a company that they own, obviously, because it gives them the power to enjoy the income. Trust arrangements don't come with any magic powers, of course.

Such a gift would also be a chargeable lifetime transfer as well, naturally, but it will no doubt be within their nil rate bands.

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By Tax Dragon
11th Aug 2023 06:15

Yes, your clients can give away the right to the income to a person that otherwise has no interest in the property using a deed of trust if they want to. They'll still be taxable on the income, if they transfer it to a company that they own, because it gives them the power to enjoy the income. This is a basic, ancient anti-avoidance rule [commonly called 'the settlements legislation'] that I thought every ACCA had heard of. More recent anti-avoidance of various hues [eg that concerning transfers of income streams - this is an example, not a list] may also be in point.

You should consider other taxes too.

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