By Louise Misiewicz Article relevant to the tax year 2017/18
Are you a high-rate tax payer looking to reduce your tax liability?
Are you looking to assign property income to your spouse?
I have written quite a few articles about how a Deed of Trust can be used to re-allocate property income from the wife to the husband and vice versa to ensure that the profits are taxed at the basic rate tax band or even have property income without any tax at all. HMRC require any property that is currently jointly owned to create a Deed of Trust, a Form 17 (HMRC declaration of income) and then register the change with land registry using a J0 form.
Please read my leading article here on the process of creating and lodging the Deed of Trust and associated documents. Once the documents have been lodged with HMRC and the Land Registry it is always good practice to ensure that they have acknowledged the documents to save pain in the future. I will talk about pains later in this article.
At this point, you are then safe to allocate the income from one spouse to another given your tax position. This is especially useful given Section 24 and mortgage interest relief, which I discussed at length in another article here. In short, high-rate tax payers will not be able to get 100% tax relief on the mortgage interest costs. This means that high-rate tax payers are more likely to pay more tax than 40% on their property income because of Section 24 mortgage interest relief cap. Section 24 is unlikely to affect basic rate tax payers, unless they are highly geared and have a lot of mortgage interest costs.
Therefore, using a Deed of Trust will be useful to reduce the impact of Section 24 to transfer the income from high rate tax payers to basic rate tax payers. My team of property tax experts are on hand to best advise our clients on how to minimise your tax using both wife and husbands personal allowances and tax bands.
Download our tax-efficient property investment guide for 2018 here
What solicitors get wrong and do not tell you about in regard to Deeds of Trust
One set of professionals you think you should trust are solicitors. They are quite happy to take your money in exchange for a Deed of Trust. Here are some of the issues that clients have found when using solicitors to prepare a Deed of Trust, and our experience of then correcting their mistakes:
- Solicitors using templates and do not check them. As a result, the names of the individuals or the name of the property is incorrect, voiding the whole document.
- They do not tell you that a HMRC Form 17 declaration of income is required to ensure that property income can be reallocated. HMRC do not care that a Deed of Trust is done. If this is not done, the document becomes void and you have to start the whole process again.
You could therefore go to your solicitor and ask them to do the work. Unwittingly you leave the office thinking that everything has been sorted. Sadly, HMRC can investigate the past six years’ worth of accounts. They can backtrack and unravel all your hard work and put the property income back to the high-rate tax payer if they find that you have reallocated property income based on a Deed of Trust without the submission of the Form 17 declaration of income. What amount of tax would you have to pay back if you have done a deed of trust without a Form 17? How much heartache and administration would be caused as a result of the solicitors work? The sad fact is that solicitors cannot be held responsible. After all, they have done what was requested and that was to create a legal document called a Deed of Trust. The fact that they did not tell you or you did not know that a HMRC Form 17 declaration of income needed to be completed is in effect your fault. Is this unfair? I believe so. That is why Optimise Accountants have decided to create a new service whereby we write the Legal documentation and lodge the correct and appropriate forms with HMRC and Land Registry. We even confirm that the documents have been acknowledged so that you can then go about your business. All we charge is £300 (inclusive of VAT) for the entire service. It is a fixed fee with no hidden surprises. Please send an email to firstname.lastname@example.org for further information.