Transfer house to wife for tax saving on rental income If the rented house is under mortgaged single ownership. The owner is a high rate tax payer. The owners wife is a low rate tax payer but the wife is unable to secure a mortgage under her name. What can the owner to reduce tax on rental income by utilising wife's low rate tax band that's acceptable to HMRC?
The husband is the single legal owner of the property.
Can the husband lease the house to the wife, the wife has the right sub-let/lease.
The wife pays the husband the lease fees. Husband accounts for tax.
Wife sub-lets to third party, any profit is taxed by.
would this arrangement be acceptable to HMRC
1. Yes he can, provided the terms of the lease permit sub-letting/leasing; no tax consequences, inter spousal transaction.
2. No need to account for tax, inter spousal transaction.
3. Wife accounts for net fees received to HMRC.
4. No question of it 'being acceptable' to HMRC; it is a reality and that Department must accept the position.
Just to double check.
The husband is a higher rate tax payer.
The wife is a low rate tax payer.
If the husband lets to property to the wife with permission to sub-let.
lets say for simplicity letting cost to wife is £12,000 per year.
Wife pays £12,000 per year to husband.
Husband deducts mortgage interest cost (£10,000) and 10% wear & tear allowance (£1,200), leaving him a net rental income of £800 on which he pays 40% tax.
Wife sublets and gets and rental income of £20,000.
Wife deducts £12,000 letting costs paid to husband, leaving her a net rental income of £8,000 on which she pays tax at the lower rate (23%?).
wouldn't HMRC view that as tax evasion by the husband because he is moving rental income to his wife whom pays tax at a lower tax rate?