If your property is subject to a mortgage and you are looking at transferring your half share in your rental property to your spouse to save income tax, you need to be careful as there are stamp duty land tax implications which need to be considered.
As far as the income tax savings are concerned, where a landlord is in higher rate of tax it makes sense for all or part of their rental property to be transferred to their spouses if they pay income tax at a lower rate. This also helps with reducing potential capital gains tax if and when the property is sold.
BUT – what about stamp duty land tax (SDLT)?
Unlike other taxes where inter spouse transactions are exempt, SDLT regards couples as individuals. SDLT is therefore payable on the monetary consideration transferred to the spouse and not its actual value.
This does not seem to be a problem where the transfer takes place as a gift but what happens if the property is subject to a loan on mortgage?
The lender must be informed of any transfer of property title and will require the new part owner to be included on the mortgage documentation. This should not make much difference to the mortgage repayments but legally it means that part of the mortgage debt is transferred to the new part owner.
If the value of this debt exceeds the SDLT nil rate threshold then a SDLT bill is triggered. At the moment, the threshold in England & Wales is £40,000.
You therefore need to consider if both the income and capital gains tax savings are worth the SDLT charge. The only other way to reduce this charge is to transfer a smaller overall share of the property to your spouse so that they take on a smaller liability of the mortgage.
It is also possible for you and your spouse to go into a formal partnership to own a property rental business and share the income tax how you would like to as there is more flexibility here.
If you are thinking of this as part of your tax planning strategy, please contact Vicky Evans at Babcock Tax & Accountancy Services Ltd on 02392 449732 or email@example.com.
If you would like our help to understand the implications in more detail for your specific situation, call us today on 02392 449732 or click on the ‘Request Call Back’ button below and we will be happy to have a chat.
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This is Vicky, signing out for now and remember – Behind every good business is a GREAT Accountant!