One way to ensure that the split of income and gains is most tax efficient is to buy the property (legal ownership) according to this split i.e. a 75%/25% split, or all in the name of the wife etc.
However, due to the fact that there is a difference in the legal and beneficial ownership of property, all is not lost if this is not done from the outset.
If, after purchasing the property, you think it is more tax efficient to divide the property differently to that of the legal ownership, two things must be done:
· A declaration of trust deed needs to be signed detailing that one person’s share (or part of their share) in the property is being held in trust for the relevant beneficiary (in most cases, this will be a spouse holding their 50% share in the property for the other spouse). The election takes the form of a declaration of the respective beneficial entitlements of both the income and the underlying property.
· Form 17 needs to be completed, detailing these changes, and sent to HMRC within 60 days.
The above has effect in relation to income arising on or after the date it was made and continues in effect unless and until a change occurs in the beneficial entitlements in either the income or the underlying property.
Please note that something to be aware of is that if there is a mortgage attached to the property in question, then SDLT may be due on the transfer of the relevant part of the mortgage – as this would be considered to be ‘consideration’ for SDLT purposes. In a normal example, if one spouse is essentially transferring the beneficial ownership in their 50% of the property, SDLT will be payable if the outstanding mortgage is greater than £250k (as their 50% share would then exceed the 0% threshold for SDLT on residential property of £125k).
There is also an additional 1% SDLT surcharge for non-UK residents buying UK residential property – see article SDLT – new rate for non-residents