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Property income - Declaration of Trust

Property income - Declaration of Trust

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Client, a higher rate taxpayer, is the sole owner of a rental property.  His wife earns nothing. He has entered into Declaration of Trust to transfer beneficial interest of the property 100% to his wife.  This was done part-way through the 2012-13 tax year.

My question is - does the declaration of trust automatically take effect for the purposes of declaring the income from the property on the tax return? So the husband would have 100% of the income and expenses for the first part of the tax year, and the wife would have 100% for the later part of the tax year, from the date on the trust deed.

If this is the case, is there any way of over-riding the declaration of trust until the following tax year?

The reason for doing so is that there were some large (unforeseen) expenses in the later part of the tax year and it would be beneficial to offset these against property income for the full year.  Otherwise, the husband will end up paying tax on a property profit for the first few months of 2012-13, while the wife will have a loss which is useless to her as her overall property income will never be high enough to pay tax.

(As an aside, does anything need to be filed with HMRC for the declaration of trust to take effect?  As far as I am aware, a Form 17 is only required for properties in joint ownership,which does not apply in this case.)

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By sparkler
14th Nov 2013 07:46

Anyone?

It would be so helpful to hear from anyone who has experience of declarations of trust / property taxation. I have thoroughly researched online and cannot find the answer to my question anywhere.  I am loath to ask HMRC as I do not think they will necessarily give me the correct answer!

Many thanks.

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By ireallyshouldknowthisbut
14th Nov 2013 09:35

.

These sorts of trusts seem to be "flavour of the month" at the moment with property and I like you have struggled to get many answers about how HMRC would view these arrangements as opposed to the effects that are supposed to arrive if you read the sorts or articles aimed at investors. 

I think you need to follow the facts of the case. Did following the decleration of trust, this actually happen?  ie when did the wife start to actually receive the income? Can you argue it was delayed?  The factors HMRC use for CGT purposes are here which might help:

http://www.hmrc.gov.uk/manuals/cgmanual/cg70230.htm

If following the trust then it all moved over, then I don't think arguing a delay is likely to stand up.

If however nothing at all changed then perhaps you can argue the trust is a dud? Ineed has this been filed anywhere?

Personally I would try and go down the Form 17 route not least as HMRC understand it and you know where you are. 

 

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Replying to The VAT Doctor:
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By unclemonty
14th Nov 2013 09:48

Not quite the same, but..............

...............I'm currently embroiled in a disopute with HMRC over a declaration of trust on shares.

I'm reasonably confident of winning but it must be said that the beneficiary received dividends and also the sale proceeds on disposal.

For your part, if the beneficiary is actually receiving the rent and paying the expenses then you should be OK, provided that the DoT is correctly worded.

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Replying to FirstTab:
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By Arielqiang
05th Aug 2014 13:14

Hello

I have seen your post about DOT on shares, I come across a case currently which may require to go down the DOT route, husband and wife hold a joint share, but husband could do with less dividend due to other incomes and wife has more room for dividend. But form 17 specifically note that it does not apply to income from shares in a close company. I have been searching on HMRC website and could not find a form to fit for this purpose and wondering which form did you use and if anything I need to watch out for since you have already had the experience. I would be much appreciated for any advice.

 

Many thanks

 

Ariel

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Replying to The VAT Doctor:
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By sparkler
14th Nov 2013 14:06

Is Form 17 appropriate?

ireallyshouldknowthisbut wrote:

Personally I would try and go down the Form 17 route not least as HMRC understand it and you know where you are. 

I only have limited experience in this area - but is a Form 17 not specifically for properties where they are in joint ownership, and the joint owners wish the property to be taxed other than 50/50 (in line with the beneficial interest)? In this case, the property is owed 100% by the husband, so presumably would automatically be taxed 100% on the husband until the DoT takes effect.

Are you saying that we could, effectively, state that the property should be taxed 0/100 on the wife via the Form 17?  This would mirror the Declaration of Trust. However, I think the Form 17 has to be filed within 60 days.  Does this mean that anything prior to the 60 days before the Form 17 is filed will be taxed under the old arrangements, i.e. 100% on the husband and 0% on the wife?

A requirement to file a Form 17 would help my case - i.e. the declaration of trust is not followed for tax purposes until the Form 17 is filed - but I'm concerned it is not actually necessary in this case, and that the DoT will be presumed to suffice on its own.

Thank you for your help!

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