To Trust or Not To Trust – Transferring To Spouse

The title of your post made me smile. Before I read you questions I thought you were going to ask something along the lines of; what if I transfer properties to my spouse and she leaves me?

Believe it or not, that is one of the most frequently asked questions (from men and women) when I recommend transferring beneficial interest in properties during a tax consultation. Accordingly, I am going to take the liberty of answering that question first.

If a spouse want a divorce the legal and beneficial ownership of property is generally disregarded by the Courts when ordering settlements. They prefer you to agree on the split of assets but if you can't they will make an order for assets to be divided in a way they feel is fair and proper.

Now turning to your question/strategy.

From an SDLT point this makes a lot of sense. However, once you have transferred the legal title of the unencumbered property to your spouse, how will you them remortgage it? You have already said you spouse doesn't have an income. On this basis, what makes you think your spouse would get a mortgage?

If you transfer the beneficial ownership to you spouse, then all she has do do is agree to you remortgaging the property. The transfer of beneficial ownership is of no business of the mortgage lender and it is completely invisible to them. there is no legal requirement to register the Declaration of trust with HMRC.

Once you have completed the remortgage, the net proceeds will then technically belong to your spouse so you should pay that money into her bank account. in turn, she can then can pay off your mortgage and you can then transfer the beneficial interest on the second property to her via a declaration of trust.

Even leaving aside the issue of whether your spouse would qualify for a mortgage, the Declaration of trust route is both cheaper and quicker.

From a tax perspective, providing the Declaration of trust is drawn up in the right way, your spouse will be able to declare all of the rental income and finance costs on her own self-assessment return form.

Property118 Limited charge £250 + VAT for each Declaration of Trust. This is a fixed fee and includes all disbursements.

Mike Woodfine (Admin and Compliance Director of Property118 Limited) can assist you to prepare the necessary paperwork, including searches. Searches are required for compliance purposes; at least in part to determine there are no mortgages which would constitute a reportable consideration for SDLT purposes.

If you would like to proceed on that basis he will require the following:-

1. The full postal address of the property
2. Scanned proof of identity (passport or driving licence) for you and your wife
3. Scanned proof of address dated within the last three months (utility bill or bank statement will suffice) for you and your wife
4. The name address and occupation of the person who will sign the Deed as your witness. This doesn’t have to be a professional, but cannot be a family member.

On receipt of the above Property118 Limited would raise an invoice for the work.

On receipt of payment the Declarations of Trust will be emailed to you in PDF format. It’s then simply a case of having it signed and presenting it to your conveyancing solicitor dealing with the sale. There is no requirement to register the Declaration of Trust with HM Land Registry.
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I do not wish to hijack MJ's question but have 3 properties in my sole name and 7 in 50:50 arrangements with my partner (in life of 20 years standing). We are not married. We would enter into a civil partnership for heterosexuals if this was allowed but as yet bizarrely it is not!

I am confused as to where we stand but need to act as I am retired on a pension and severely affected by section 24. My partner is working part time and is not as things stand. She is eligible to take early retirement next year on a reduced pension, (less than salary) so there is scope for beneficial interest transfers and inclusion on the deeds of those owned by me at a modest financial commitment level for which I am hoping no SDLT would be needed.
How would that work for an unmarried couple?

Reply to the comment left by "Chris Novice Shark Bait" at "14/06/2017 - 11:14":

Hi Chris

For your circumstances I would suggest transferring just 1% of beneficial ownership to stay below the £40,000 SDLT threshold and crystallise less than capital gains than your annual CGT allowance could absorb. Then form a partnership to enable you to allocate profits disproportionately to ownership.

This strategy is equally applicable to people who are not married as it is to people who are.

We have produced an eBook which explains this strategy in detail and costs just £5.99. Please see the link below.

https://www.property118.com/guide-setting-property-partnership-ebook/
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Thanks Mark, I will give your e- book a go. I have dallied with the thought of consulting you but we have the sword of Damocles hanging over our heads in relation to Mortgage Express which rather complicates matters. Ducks need to be in a row. They just won't get in the right order. I rarely comment but avidly read. Keep up the good work and good luck to M.J. You are on the best property site ever.
Chris.

Reply to the comment left by "Mark Alexander" at "14/06/2017 - 11:26":

Many thanks Mark, will do!

I need help with Mortgage Express. Back in 2008 MX reposed some properties. After they where sold, it had a shortfall, but they did not ask for any money until after 3 years. We agreed a repayment amount because they still had some other properties from me. After two years the company they where using to collect the repayment stopped collecting and returned the accounts to Mortgage Express. Everything went quite a gain for another two years. again, we entered into another monthly payment agreement.
Now, last year Mortgage Express asked me to give them consent to secure the loan on the other properties and my residential home. But, I did not give them consent.

The have now put a claim against me in the high court in Manchester. I have sent in a defence without consulting any solicitors yet. But, I know one is needed is I am going push back against Mortgage Express.

Please help, what can I do at this stage?

Sorry to Hijack, unmarried couple (A&B) are separating and currently jointly own a property with a joint mortgage.

A will port the mortgage into own name with same mortgage provider and the Title deeds will be updated into the sole name of A.

B cannot get the property they want without A also being on the mortgage application. A is happy to be on the mortgage for B as part of the split (all being done on good terms).

The proposed structure is for A to be a Bare Trustee with the legal title being to B after the 2 year fixed period. When B would either remortgage or port into own name. On the basis of more equity and higher income.

As A will be a part legal owner and jointly and severely liable for the mortgage (though as a trustee) but as B is the beneficial owner of the property my understanding is there would be no SDLT surcharge implications.

I assume lenders would be OK with this structure as the legal ownership is A & B as far as they are concerned is unchanged. Both parties legally responsible for the mortgage liability. This is simply to get the correct SDLT treatment.

Assuming I am correct with the above, any contact for the conveyancing, Trust and SDLT work. Preferably through an email rather than form submission so that I can copy and paste.

Reply to the comment left by Mark Alexander - Founder of Property118 at 14/06/2017 - 01:53
Hello Mark,

I found the answer to M James' question really helpful but I had just one query if I may.
You mention that "the transfer of beneficial ownership is of no business of the mortgage lender and it is completely invisible to them" but in the same answer state that "searches are required for compliance purposes... to determine there are no mortgages which would constitute a reportable consideration for SDLT purposes.".

Having read the relevant SDLT legislation, it's clear that SDLT is only payable on the £ consideration of transfer, this would apply to the outstanding mortgage amount if the mortgage was transferred between spouses, but as your answer states; this trust deed is of no interest to the lender, so what relevance does it have to SDLT?

Reason I am asking this is I have a situation that i'm sure you must come across frequently:
- My wife owns a buy-to-let property, 100% legal owner, (£900k value, £700k mortgage), and is a 45% taxpayer
- I am a 40% taxpayer but looking to quit my job for childcare reasons so will have no income. It makes sense for tax reasons to declare the buy to let income in my name.
- My wife will have to retain the legal ownership and the mortgage in her name (as I can't get a £700k mortgage with no income!)
- We plan to do this through use of a normal trust deed or interest in possession trust deed (depending on which is compliant with ITTOIA), transferring beneficial interest to me.
- We want to ensure there is no SDLT implication as the mortgage will stay in her name.

Keen to use your services to draw up the deeds and get the relevant advice, if you could kindly clear up the point above first

Reply to the comment left by Daniel at 06/01/2023 - 16:26
It is no longer economically viable for us to use our Barristers to draft Trust deeds of this nature. We recommend Clients who need this service to speak to an established Conveyancing Solicitor. They will be able to advise you further on the specifics of your case.

I recommend you to have a chat with Blacks Solicitors on the basis that they are also on pretty much every mortgage lenders panel, they are a big firm with a good reputation to protect and solid PI insurance. A small market town solicitor will be the cheaper option but you get what you pay for.