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I own an unmortgaged freehold flat which I have rented out

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Hi,I own an unmortgaged freehold flat which I have rented out for a couple of years. I pay higher rate tax, whereas my wife earns c£5k p.a.Is there a way that I could assign or transfer the income from this flat to my wife? It seems that the only way that is 100% compliant with HMRC is to gift 100% of the property to my wife. Ideally, I would retain an interest in the flat to prevent money being raised on the flat in future without my consent.I understand though that if I retain say a 1% interest in the flat I would need to inform HMRC via form 17 of the arrangement, which to my mind would alert their interest in the arrangement.Thanks
Ian

Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.
Many thanks

Thank you for your question.

You would be doing the right thing by completing Form 17. You may be making HMRC aware of the respective financial interest in the property but consider the benefits of doing so...

- 2 lots of capital gains allowance to offset against the gain on sale

- mitigation of CGT (making using of lower rate of 18%) on sale

If you wish to utilise your wife's personal allowance and also have rental income taxed at basic rate, then your only option is to transfer financial interest in the property to your wife .. it need not be 99%.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 6 months ago.
Thanks for this.I spoke to a solicitor yesterday (Howells) to start the process of adding my wife to the land registry for this property & to also draw up a declaration of trust stating that she would own 99% of the property.They told me though that I didn't need to do this as there was some sort of section 21 notice (or some such, which a solicitor at Howells had actually done) which would assign the income to her rather than me, without the need of paying stamp duty & solicitors fees. Apparently, this section 21 notice could be set up by an accountant. Have you come across anything like this?However I am sceptical whether this approach actually exists & whether it would work in practise as it feels like HMRC could challenge on the basis that the arrangement had no other purpose than to reduce tax.Would filling a form 17 with HMRC (showing a 99% share of a property owned by the non tax paying spouse) not ring alarm bells with them? Or would HMRC take the view that it was only a rational or common thing to do?I should also perhaps say that the rental income is only about 5k each year so my wife would pay no tax on this at all (we live in the north, not the south east!).Thanks
Ian

Thank you for your reply.

Section 21 notice deals with notice period to evict property.

As it is your intention to pass a share in the property to your spouse for no consideration (a gift), there should be no stamp duty implications and solicitor's fee should be low.

I have not heard of scenario where husband can pass income that is chargeable to income tax on him to his wife without tax implications.

You are gifting your share to your wife and any transfer of assets between spouses are tax neutral as they are deemed transferred at cost price. No alarm bells should ring resulting from it.

Ian, income of £5k is valuableand significant whether you live in the North or the South East of this country.

More information on section 21 notice can be found here

https://www.fsp-law.com/articles/section-21-notices-just-got-harder

I hope this is helpful and answers your question.

Customer: replied 6 months ago.
OK thanks.finally, to check my understanding then, can you confirm please the following:
- as it's a gift there should be no stamp duty, whether I transfer 100% of the property, 99%, 50% or whatever (via declaration of trust)
- if I transfer via a declaration a share of 99% of the property to my wife, then I need to complete a form 17 with HMRC
- filling a form 17 will not raise suspicions at HMRC of tax evasionThanks
Ian

Thank you for your reply.

A declartion of trust is a document you would have to satisfy the needs of HMRC confirming financial interest. Form 17 is completed and sent to HMRC and a declaration of trust is supporting document to provide evidence.

By completing this form you are formalising arrangements with HMRC and it would not raise suspicions of tax avasion.

More on Form 17 here -

If you live with a spouse or civil partner and have income from property you jointly own, you’ll normally be taxed on an even split of the income between you.

Use this form if you want to change the split of income to your actual share of ownership.

You’ll also need to provide evidence that your beneficial interests in the property are unequal, for example a declaration or deed.

I hope this is helpful and answers your question.

Customer: replied 6 months ago.
OK thanks.finally, can you confirm please the following:
- as it's a gift there should be no stamp duty, whether I transfer 100% of the property, 99%, 50% or whateverThanks
Ian

Thank you for your reply.

There should be no stamp duty to pay on this transfer.

Please look here under " If you get land or property as a gift or from a will"

https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

I hope this is helpful and answers your question.

If there are no more issues, I will appreciate if you would kindly rate my service/accept the service I have provided before you leave the site, to ensure I get credited for it by Just Answer.

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Customer: replied 6 months ago.
Thanks, that's great

I thank you for accepting my answer.

Best wishes.