Transferring rental income or property between spouses

Chris Broome – Chartered Financial Planner

Transferring rental income or property between spouses can offer significant financial benefits, including potential savings on Capital Gains Tax (CGT) and Inheritance Tax (IHT).

It’s a smart financial move for married couples or civil partners.

Here’s how you can go about it.

Longhurst - Property

1. Transferring Rental Income:

You can seamlessly transfer rental income to your spouse using various methods:

a. Deed of Assignment: This allows you to assign the beneficial interest to your spouse, regardless of whether both of you are named on the property’s title.

b. Sever Joint Tenancy and Draft a Deed: If you own a buy-to-let property as joint tenants, you’ll need to change to tenants in common and then share the rental income through a deed. Don’t forget to complete Form 17 and attach the deed when declaring your income to HMRC.

c. Transfer of Equity: If the property is solely owned, you can add your partner to the legal title through a transfer of equity process. If there’s a mortgage, you’ll need consent from the mortgage lender and likely add your spouse’s name to the mortgage.

d. Sale and Purchase: This is a more expensive option where the current owner completely transfers the property to their spouse. It’s typically done as part of a divorce settlement.

Remember that you’re responsible for the tax on your share of the rent on the day it’s paid. Ensure you file your tax return and pay HMRC by January 31st for the previous year’s rental income up to April 5th. The sooner you act, the sooner you can declare income according to your desired shares.

2. Transferring Property:

Transferring property between spouses can lead to CGT and IHT savings. For instance, if a husband transfers a rental property to his wife, it’s usually exempt from CGT and IHT. Plus, if the wife pays a lower tax rate, the couple will have less income tax to pay on the rental income. When they sell the property, they’ll also pay less capital gains tax.

Transferring property before selling it can further reduce the CGT bill by utilising both personal allowances, effectively doubling the allowance for married couples and civil partners, provided it’s a genuine, outright gift. However, transfers to others, such as siblings or common-law spouses, will incur CGT, treating the transfer as a disposal for capital gain.

3. Stamp Duty Considerations:

While property transfers between spouses are exempt from CGT, be aware of stamp duty implications. No automatic stamp duty relief applies when transferring property to your spouse. Stamp duty land tax is based on consideration, which can include cash payments or assuming mortgage liability. If the new owner takes responsibility for a mortgage, they become liable for the stamp duty land tax.

4. Principal Private Residence Relief:

Keep in mind that if you currently benefit from principal private residence relief, it may be at risk when transferring property to a spouse. To qualify for this relief, the transferee spouse must have lived in the property as their principal private residence during the ownership period. If this condition isn’t met, the relief may be lost.

In summary, transferring rental income and property between spouses can yield substantial financial advantages, including tax savings.

Ensure you follow the right procedures and consider potential stamp duty and relief implications.

The process for transferring would not be overseen by us here at Longhurst. We would look to introduce you to an accountant in the first instance.

Please note:

This blog is for general information only and does not constitute advice.

The information is aimed at retail clients only.