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Rental Income transfer to unmarried partner

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Hi,

Our client, higher rate tax payer, 50:50 jointly owns 1 BTL property with his unmarried partner and wants to trf his 100% share of rental profit to his lower rate tax payer unmarried partner making it 0:100 or similar beneficial ration, but was advised by his solicitor that doing so will trigger CGT and SDLT as he cannot trf income without transferring underlying asset. I would like to hear your expert thoughts on it.

Thanks in advance.

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By Tax Dragon
14th Jan 2022 08:00

Say please.

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Replying to Tax Dragon:
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By Hynton
14th Jan 2022 09:39

My apologies for been so rude,
May i please benefit from your expert opinion.

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Replying to Hynton:
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By Tax Dragon
14th Jan 2022 12:28

Was that so hard?

OP, since you ask so nicely... HMRC produces manuals for its staff much of which are published under FOI. Search for PIM1030 and have a read; also search for TSEM4200. You might think these two extracts can't both be right - but then I am inviting you to read out of context.

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Replying to Tax Dragon:
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By Tax Dragon
14th Jan 2022 12:37

Oh... just caught up with the thread... you already know much of that.

Edit... PS... advise not being short with Wanderer... highly respected in these parts

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By Wanderer
14th Jan 2022 08:22

Hynton wrote:

Our client, ...

You sure?
Hynton wrote:

would like to hear your expert thoughts on it.

What are your considered thoughts?
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Replying to Wanderer:
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By Hynton
14th Jan 2022 10:10

In my humble opinion afyer reading PIM1030 it gives an impression that he can transfer his income to his 5o% owner unmarried partner to take the IT Advantage and CGT and SDLT should NOT arise.. all he require is to prepare DOT or a simple home made agreement mentioning the trf of income only,

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Replying to Hynton:
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By Wanderer
14th Jan 2022 12:00

Hynton wrote:

.. all he require is to prepare DOT or a simple home made agreement mentioning the trf of income only,

Where's a Deed of Trust mentioned in PIM1030 then?
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Replying to Wanderer:
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By Hynton
14th Jan 2022 12:25

I think you read the comment in haste, i said "IN MY OPINION"( it could be done that way ), i might be wrong.
I shall appreciate if you can please answer the question which can help others rather nitpicking, sorry to say but your comments are not helping

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Replying to Hynton:
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By Wanderer
14th Jan 2022 12:46

Hynton wrote:

I think you read the comment in haste, i said "IN MY OPINION"( it could be done that way ), i might be wrong.
I shall appreciate if you can please answer the question which can help others rather nitpicking, sorry to say but your comments are not helping

WOW!
I often, on here, try to point others in the right direction rather than do their homework for them. In the long term that does you more good than me just giving you the answer. It can also provoke a good technical discussion bringing in various points.
Similarly TD is inviting you to do much the same in their 14th Jan 2022 12:28 post.

Your original question gave no indication whatsoever that you'd done any research.

I thought I'd given you a hint, but clearly this was unappreciated.

With an attitude like that you'll get no more help from me.

Good luck.

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Replying to Hynton:
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By gillybean04
14th Jan 2022 12:20

I take it you're unaware a DOT would be your client declaring he doesn't actually own the property, his partner does?

That's why the solicitor is right. By making the DOT, there would be a disposal.

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Replying to gillybean04:
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By Hynton
14th Jan 2022 14:42

Many thanks.

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By bernard michael
14th Jan 2022 09:31

A solicitor giving wise tax advice. That's an exception

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Replying to bernard michael:
By ireallyshouldknowthisbut
14th Jan 2022 16:29

To be fair we work with some solicitors who are spot on with anything around IHT and CGT on post death disposals.

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By Paul Crowley
14th Jan 2022 10:07

Cannot move the income without movng the asset.

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Replying to Paul Crowley:
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By Michael Davies
14th Jan 2022 10:40

Yeah I thought you had to Xfer at least beneficial ownership.I wait to be corrected.

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Replying to Paul Crowley:
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By Hugo Fair
14th Jan 2022 10:41

... or first marrying "his unmarried partner "?

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Replying to Hugo Fair:
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By gillybean04
14th Jan 2022 12:22

Would still need to transfer the asset, even if they were married. Just would be able to avoid cgt.

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Replying to gillybean04:
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By Hugo Fair
14th Jan 2022 13:57

Agree ... I was trying to (indirectly) respond to OP's concern that "was advised by his solicitor that doing so will trigger CGT and SDLT" - by offering a 'solution'!

And was waiting to see if OP spotted what his client may consider the 'downside' ... which you've kindly now pointed out to him in your slightly earlier post of 12:20

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Replying to Hugo Fair:
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By gillybean04
14th Jan 2022 15:14

I suspected that may be what you were angling at, but thought it best to clarify in case it was taken out of context to mean he can assign only the income if they marry.

Yes, potentially a very large downside!

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Red Leader
By Red Leader
14th Jan 2022 14:48

The couple need to actually receive the rental profits in the desired 0:100 ratio.

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Replying to Red Leader:
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By Hynton
14th Jan 2022 15:25

100% rental income is received by the lower rate tax payer on monthly basis

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Replying to Hynton:
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By Tax Dragon
15th Jan 2022 07:17

It probably wasn't clever to do that without taking advice first. (See also The Dullard's recommendation not to do it.) Much more sensible, pending advice, to split the income per the ownership and make transfers of taxed cash if desired.

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By justsotax
14th Jan 2022 15:03

giving away an asset to save tax is always a minefield (see replies todate).....although the person receiving the gift will be over the moon.....equity, income.....whats not to love! (unless they have to put their name on the mortgage.....hmmm....)

Probably worth you taking 'paid' expert advice.....

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By The Dullard
14th Jan 2022 15:49

Hold on all, is everybody missing the bit in PIM1030 (under "Jointly owned property: no partnership) where it says, "But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed."

Because that's what the OP is talking about and getting frustrated about.

No transfer of beneficial ownership, no deed of trust needed.

The settlements legislation (ITTOIA 2005,Pt 5 Ch 5) could still apply if any of the diverted profits (read settled income) are applied for the benefit of the higher rate taxpayer.

And, if the settlements legislation doesn't bite, the transfer of income streams legislation (ITA 2007, Pt 13 Ch 5A) could apply in its stead.

Both the settlements legislation and the transfer of income streams legislation are self-assessable, meaning penalties if you fail to apply them when they apply.

The only way around the transfer of income streams legislation is a transfer of beneficial ownership (by deed of trust or legal conveyance); which would give rise to CGT and SDLT but wouldn't prevent the settlements legislation from applying.

In brief OP, don't do it!

Interested to know though how much rental profit we're talking about, from 1 BTL, that the "client" wants to save 20% tax on?

EDIT: Red Leader has arrived since I started typing this post.

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Replying to The Dullard:
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By Hynton
14th Jan 2022 16:46

Absolute legend, and spot on information that i was looking for. Many thanks

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Replying to The Dullard:
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By gillybean04
15th Jan 2022 10:19

I wasn't missing it. It says share agreed, but is it talking of the share of property agreed, or the share of income?

Taking it to mean share of income agreed would conflict with both ITTOIA and the bottom of PIM1020.

Being a beneficial owner means you are entitled to any benefit derived from the property or land, whether that benefit be use, rental income or disposal proceeds.

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Replying to gillybean04:
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By The Dullard
15th Jan 2022 11:00

gillybean04 wrote:

I wasn't missing it. It says share agreed, but is it talking of the share of property agreed, or the share of income?

"The share for tax purposes must be the same as the share agreed." A share of the property isn't taxed (in the context of PIM, which is considering how income from property is taxed).

See slaso: https://www.taxation.co.uk/articles/2014-03-13-247821-pieces-property-pie

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By More unearned luck
14th Jan 2022 15:53

Is the solicitor's advice regarding SDLT correct?

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Replying to More unearned luck:
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By The Dullard
14th Jan 2022 16:23

Only if there is a transfer of beneficial ownership for which there is consideration, including the assumption of debt (where FA 2003, Sch 4, paras 8(1) or 8(1A) apply, assuming the properties in England or Northern Ireland).

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Replying to The Dullard:
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By More unearned luck
16th Jan 2022 17:12

I meant, that the UP is certain to be already jointly and severally liable for the whole debt and is therefore incapable of assuming a greater share, if her/his share in the property is increased, ergo there is no consideration for SDLT. Is this analysis correct?

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Replying to More unearned luck:
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By The Dullard
16th Jan 2022 18:39

Yes.

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By Hynton
18th Jan 2022 12:37

Thank you all for all your kind input and enlightenment.

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