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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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, My mother-in law died 3 years ago. Her estate was left

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My mother-in law died 3 years ago. Her estate was left 75% to my husband and 25% to my son.
We have been renting out her home but now want to register our ownership with the land registry. We would also like to set up a declaration of trust so that I can receive the bulk of my husband’s share of the rental income as I am a non-taxpayer and he is a higher rate taxpayer ( I also do the property management and the rental income is paid into an account in my name). I realise that we would not be able to back-date this arrangement.
If we now set up a Declaration of Trust to state that the income should be paid in the shares 74:25:1 (myself:son : husband) will this be accepted by HMRC? Do we also need to register the property in all of our names?
I assume that capital gains tax would be assigned along the lines of the legal ownership which we would like to register as 37.5% each to myself and my husband and 25% to my son.
Many thanks

Where a property is owned between a husband and wife, the income will be split on a 50:50 basis unless it is actually owned in proportions other than 50:50 and a form 17 is completed and submitted to HMRCsetting out the reality. A declaration to prove the ownership proportions will back up the form 17.

As far as your son is concerned, his share of the income does not have to be in line with his ownership share.

The property should be registered in all your names but the deeds don't show ownership proportions.

Capital Gains Tax is based on ownership proportions.

I hope this helps but let me know if yiou have any further questions.
Customer: replied 3 years ago.

Can the declaration of trust be set up so that the ownership is 37.5:37.5, whereas the income is 74:1?

You cannot use the form 17 unless you want the rental income split in the ownership proportions. The notes at the top also say that you cannot use the form if you do not own the property in unequal shares. It then goes on to say that you cannot have the income taxed on an unequal basis because you think it would be to your advantage.

I've always been wary of declarations of trust which split income and capital in different proportions (cake and eating it syndrome) but I know many accountants, tax advisers and solicitors do it for their clients and have no problems. If you look at the sixth paragraph here it says "A couple cannot make a declaration where the split of beneficial ownership of the asset and of the income from it differ." This would appear to only apply to form 17 though. Therefore, a properly drawn declaration of trust should work based on what others have told me of their experience.
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