Form 17 to split income?

Hi Ridvan,
If you are married, you have correctly identified the first level of tax planning to consider is a restructure of your income to optimise all available basic rate tax allowances with your spouse (currently £45,000 each). The tax changes to mortgage interest relief will only affect you if your total taxable income (including mortgage interest) exceeds £45,000 a year. The Chancellor of the Exchequer confirmed in the 2017 Spring Budget Statement that this figure will increase to £50,000 by the year 2020. Restructuring income between spouses is achieved by changing the percentage of beneficial ownership of your rental properties using a Declaration of Trust which does not necessitate refinancing as you are not changing the legal ownership.

Although there is no CGT between spouses you do have to consider Stamp Duty if there is a mortgage and you are transferring a percentage that comes to a proportional amount of more than £40,000.

A Form 17 is then used to register the beneficial ownership with HMRC for tax return purposes.

Please see our tax planning page >> https://www.property118.com/tax/

Another alternative would be to form a partnership which is very simple to do and would provide greater flexibility. However, for HMRC to accept you are a partnership they will also need to accept you are running a business. If you never intend to purchase further rental properties this might be difficult to prove, but if you do intend to buy more properties there are other structures you might wish to consider such as forming a mixed partnership, where by one of the partners would become a limited company.

As you can see there are a number of options depending on a variety of circumstances hence a consultation with Mark is highly recommended.

Please note that consultations come with a guarantee of total satisfaction or a refund.

I believe that there is a CGT implication if you have previously lived in one or both of the properties and she has not. My understanding is that you will lose Private Residence Relief and Lettings Relief on the percentage that you transfer to your wife if/when you come to sell.

Reply to the comment left by Neil Patterson at 12/09/2017 - 11:13
Neil Patterson
thanks a million for your confirmation/advise.
my employment wages are just over £48.000
plus gross rent received from the properties £45.000
my plan.
Add my spouse to the mortgage / appoint a solicitor to deal with transfer of a 50% equity as tenants in common (register with hmrc), also drafting a deed of trust then form17 to follow with in 60 days.

my concern
1) once my wife name on the mortgage do i need to let the lenders know of the form 17 / transfer of beneficial interest 90/10 in spouses favor ?

many thank
Ridvan

Reply to the comment left by Marlena Topple at 13/09/2017 - 08:35
Hi Marlena

both properties bough as buy to let (unfortunately both on my sole name)

regards

Reply to the comment left by Ridvan xhakaj at 14/09/2017 - 08:06
Hi Ridvan

Neil is on holiday for a week now, hence I am responding as Founder of Property118 in his absence.

I think you ought to go back to your solicitors and ask them to confirm their advice in writing. The tax figure you have quoted doesn't look right to me. Also, you cannot file Form 17 to split income 90:10 if ownership is 50:50.

I don't see why you need to add your spouse to the mortgage either.

Also, the split of beneficial ownership is of no interest to the mortgage lender unless it impacts on their security or they have conditions which preclude the transfer of beneficial ownership. I am only aware of one lender with such conditions and that is CHL. However, I questioned the validity of that particular condition in the linked article below.

https://www.property118.com/chls-mortgage-terms-reasonable-even-legal/

Reply to the comment left by Mark Alexander at 14/09/2017 - 08:55
Mark
many thanks for your reply.
if i were to transfer her 20% of the owner ship would the form 17% work to split income 90:10 or do i need to transfer her 90%..
pls excuse my ignorance.

a brief tax figure for both of us.
my income
full time employed £48.000 pear year gross
property income £45.000 pear year gross (1 hmo + 1 single let)

Spouses income zero.

Maybe wrong - but i though 1st step to all this was to add her on to the mortgage,
Once she is a joint owner it will be possible for us to enter into a deed of trust setting out the beneficial ownership of the property which in turn will determine how the income is taxed.

Reply to the comment left by Ridvan xhakaj at 14/09/2017 - 09:43
Hi Ridvan

If you want to give your wife the bulk of the income then you either need to transfer the bulk of the beneficial ownership to her and pay the SDLT. The beneficial ownership and percentage on income allocated via form 17 must match each other.

As Neil said, the alternative is to form a partnership. This enables you to allocate profits disproportionately to ownership. For example, you could transfer only 1% of beneficial ownership to you wife but then allocate the entire profit of the partnership to her on the basis that she does all the work.

This really is as far as I can go in terms of advising you without you becoming a client.

Reply to the comment left by Mark Alexander at 14/09/2017 - 09:56
Mark many thanks for your help / explanation.

will have to consider another route.
few months back i went to see an financial advisory he described my situation as being between a rock and hard ground..

Reply to the comment left by Ridvan xhakaj at 14/09/2017 - 14:12
I will be happy to help if you would like to book a consultation.

Note these are risk free because they come with a guarantee of total satisfaction or a full refund. I cannot guarantee that I will find a solution to your problem, but if I can't it will cost you nothing.

For further details please see https://www.property118.com/tax/

Hi Ridvan / Mark

Why don't you consider setting up tenancy in common with your wife to allow your wife you take majority of the income?

This is inexpensive way of portioning the income to your wife without any need for restructuring of mortgage or ownership.