I wonder if someone would care to advise us or suggest a good link please:
My wife and I own a house as joint tenants (in England). We plan to let it with an AST and we would like to allocate the rental income entirely to my wife becuase she pays tax at a lower rate than I do.
Is there anything we need to do other than simply write the rental income in her tax return? The revenue website does not seem to address the question.
For example, should the AST contract show her alone as the landlord?
Surely this has to be part of the title deeds, even if the register itself only has the boiler plate about requiring permission before sale. Otherwise it is going to cause big problems if there is a divorce or one party dies and there is a tax advantage in assuming a different split.
There is a distinction, is there not, between legal ownership (essentially the full package of property rights which comes with title) and the slightly more abstract notion of one particular property right known as beneficial ownership (the right to derive benefit from the property - be it on the one hand the benefit of its direct enjoyment by occupying it as a residence, or on the other the benefit of deriving an income from it by renting it out).
Normally beneficial ownership is a consequence of legal ownership, and if a property is owned in shares, then beneficial ownership is usually assumed to be in the same proportions as legal ownership. But it is possible to change the proportions of one without changing those of the other, and moreover to do so for limited periods of time. So one co-owner could sell or give away their share of just (say) one year's beneficial ownership, without losing their share of legal ownership. As title deeds only record legal ownership (or title), no change to the deeds is involved when transferring only beneficial ownership. But to avoid doubt it would nevertheless be a good idea to document such a transfer for the benefit of the parties involved and of anyone else who may need to know (such as HMRC).
Thus where a husband and wife own a property in equal shares, the husband could give his entire half share of beneficial ownership to the wife without losing his legal ownership (and with it the right to claw back beneficial ownership). If the property is rented out, this would mean she would then be earning 100% of the rental income because she would have, for the time being, 100% of the beneficial ownership despite still only having 50% of legal ownership.
A different way to think about it is that the husband rents his half of the property to the wife (together with the right to sub-let it to the real tenants). That way she would be liable to income tax only on her profit to the extent that her rental income after expenses exceeds the rent she has to pay her husband for the privilege. The husband is of course free to charge her as little rent as he wishes, even zero, and so the entire profit would be taxable as her income and not as his.
I can't guarantee that it's the case for husband and wife but for unrelated people there is no need to change the deeds.
I gave my partner a share in a house I own via some sort of deed (sorry, can't remember the legal name now). The deed forbids either of us selling our shares without the permission of the other but I was told that the only different putting her name on the land registry was that I'd be prevented from selling the house without her permission rather than merely prohibited - so if I did sell it improperly she'd have to sue me for her share.
What you describe sounds like tenants in common, which is the standard way of giving separate "ownership" to part of the value for each spouse. In that case the legal owner is a trust and the husband and wife are trustees and beneficial owners. That's what I was assuming.
Well, we all know there's a difference between tenancies in common and joint tenancies. This is the first time I've heard one of them described as constituting a trust, and I dare say you're proably right there, but I think you've picked the wrong one. No matter.
An "in common" ownership is the form where each of the co-owners in effect has individual title to a distinct share of the property, which can be any arbitrary fraction of the whole, and which can be disposed of by its owner by way of gift, sale, or inheritance independently of any of the other shares. In particular, if an "in common" co-owner dies, his share will pass (by will or intestacy) to his heirs, without affecting the shares of the other co-owners.
A "joint" tenancy is the form where all co-owners own the *whole* property
*together*. No co-owner can dispose of his share because there are no shares. In particular, if a co-owner dies, his heirs gain no part in the property. All that happens is that there will be one fewer co-owner, i.e. if a property is jointly owned by 3 persons, and one of them dies, it will then be jointly owned by the remaining 2 persons. So much for legal title, although for inheritance tax purposes, shares are imputed even though they legally do not exist, and the deceased owner will be deemed to have owned a
1/3 share of the value of the property and to have passed it in equal shares to the surviving two co-owners, and his estate will be taxed accordingly. Of course where a married couple own a house jointly, the deceased's pseudo-share passes to the surviving spouse, and inter-spousal transfers do not attract IHT.
It's important to note that "in common" and "joint" tenancies are two (in effect the only two) forms of legal ownership, or of title. On the other hand beneficial ownership, or beneficial interest, is something else, it exists on a different level. It is a right which derives from legal ownership but is not the same thing.
Beneficial interest is in principle independent of title (i.e. of legal ownership), and this is the case irrespective of whether title is held jointly or in common. The default assumption is that a co-owner by virtue of his co-ownership is entitled to a share in the beneficial interest in the property. In the case of "in common" ownership, each owner's fraction of the beneficial interest will initially be equal to his fraction of the title, while in the case of joint ownership it will be equal to the reciprocal of the number of owners (e.g. when there are 3 joint legal owners then each will have 1/3 of the beneficial interest).
It is my understanding that in either case each owner can dispose of his beneficial interest for any period of time (provided it does not extend beyond his period of legal ownership).
Specifically this means that where a married couple own a house jointly (as they usually would), then he can assign any part of his 50% beneficial interest to her without affecting his legal ownership. Likewise if a married couple owned a house in common (as they usually would not), be it in equal or unequal shares, he could also assign any part of his fraction of the beneficial interest (whatever it might be) to her, without needing to change his share in the legal ownership. So the title deeds need not be amended.
Thank you for your very helpful and interesting replies.
They would suggest that I could assign my beneficial intrest in the house to my wife for, one tax year and I could then 'renew' this assignment each tax year.
I wonder if the inland revenue would accept such an assignment of beneficial interest and tax us (her) accordingly on the rental income. I have never heard of this being done and I have not seen it in any book.
presumably something like this:
"NOW THIS DEED WITNESSES AS FOLLOWS: The Assignor hereby assigns to the Assignee 99% of his his beneficial share and interest in XXX (property address) until YYY (date)" signed: assignee assignor witnesses
I forgot to add that we would presumably send this in with Form17 (informing HMRC of the status of the house) and ask HMRC if such an assignment for a limited time period was acceptable to them. the form does not look encouraging.
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It says "You cannot simply choose to have the income taxed on an unequal vbasis because you think it would be to your advantage."
But having looked into this a bit deeper, it unfortunately appears that any such assignment of a share in *only* the beneficial interest, especially if time-limited, would not be effective for tax purposes. It would need to be accompanied by a similar assignment of legal ownership. This is a special restriction which only applies in the case of co-owners who are married to each other and living together.
There would be no need to send this in with the form. Simply making the declaration on Form 17 is sufficient for their purposes. But even though no copy of it need accompany Form 17, nevertheless there would need to be made a deed of transfer of (share in) title which is legally binding on you as transferror, i.e. if at some point the property was sold, she would be entitled (important in the case of a breakdown of the marriage) to an increased share of the sale proceeds; and indeed she could sell all or part of her share on to some third party even while you retained the rest.
So it seems you need to trust her that she's not just going to say thanks a lot and then run off with the milkman.
One more thing is that before assigning shares you need to make sure there are shares to assign. In a joint tenancy there aren't, so this would need first to be severed to create an in-common tenancy, and this probably entails changing Land Registry details, whereas a simple change of ownership proportion where a tenancy is already in-common would not.
Perhaps the simplest solution, given that you must relinquish all interest in the share assigned, and that you really want all the income to be treated as hers, would be just to get rid of co-ownership and the hassle it involves, and just transfer full title into her sole name.
Or perhaps she could take out a mortgage and buy my share of the house. The rent minus the loan interest would be abuot the same as her current share of the rent. I'd have the capital realised form the sale of my part but no rental income of course.
Probably we'll do nothing other than opt to be taxed on half the rental income each.
Is the house unmortgaged at the moment? If so, her taking out a mortgage loan from a commercial lender would add new expenditure to your joint finances and thus make you jointly worse off, as she would almost certainly be spending more on loan interest than you would save by your half of the rental profit not being taxed.
So this would not be a terribly clever idea. But you're not far off the right track. Consider this:
*You* could lend her the money to buy your half share. The money would not actually need to exist, since you would simply write her a cheque (payable to the seller, i.e. yourself) which you would immediately accept back as payment for the house, and then tear up.
If you think it necessary, you could even become a mortgagee, which would give you some security against her running off with the milkman. She couldn't then sell the house without repaying you the loan.
Your loan to her could be at an extremely favourable interest rate, in fact it could be zero, since obviously you would have to pay tax on any interest you earned from this deal, and this is exactly what we are trying to avoid. Although she could set the interest as an expense against her rental income, and would thus save 20p tax for each pound of interest she pays you, you would pay 40p income tax on that pound received, so jointly you'd be 20p better off for every pound you charge her less. If the overall rental profit is less than her Personal Allowance, it would be even worse: You'd still pay 40p in respect of each pound of interest she paid you, but she would save nothing on the expense.
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