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TaxVince
TaxVince, Accountant
Category: UK Tax
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Experience:  Chartered Accountant >20 years + Qualified IFA
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Two years ago, I moved with my wife and family to a new home.

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Two years ago, I moved with my wife and family to a new home. Despite trying to sell our former property, the market here on the Isle of Wight was slow for our type of property (detached 4-bed house, c £400k) so we decided to rent it out for at least a year. Meanwhile, to cover the costs of purchasing the new property, we asked the bank, Barclays, to extend a small mortgage on the old property, pending a sale.

They agreed to do this but, because of my age, 70 years, declined to include me on the mortgage or take my earnings into account (circa £45k last year as an electronics consultant). At first, this did not seem to matter as my wife'e earnings were enough to cover the small (£54k) mortgage. However, as things progressed, they then decided that in order to proceed, I would need to sign over the property to my wife and, furthermore, take out an insurance in case I became bankrupt and made a claim on the property.

Needless to say, this is not acceptable to us (my wife & I are happily married and not likely to split up) and, at the moment, we seem to be at an impasse. From our viewpoint, this seems to be a ridiculous situation, given that I am healthy, working full-time and likely to remain so and therefore not adding any risk to the mortgage repayment (in fact quite the opposite) and, in any case, the amount is a small percentage of the property value and really only required until we cab sell the property which we will attempt to do early next year when the tenancy agreement expires.

My concerns are not only that the terms are unreasonable but that, if I were to sign over the property, then this could have implications for capital gains / inheritance tax when one or the other of us dies.

Can you advise any way around this apparent impasse?

Thank you

XXXXX XXXXXllington
Submitted: 12 months ago.
Category: UK Tax
Expert:  Lindie-mod replied 12 months ago.

Hello,

I'm Lindie, and I’m a moderator for this topic.

We have been working with the professionals to try to help you with your question. Sometimes it may take a bit of time to find the right fit.

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Customer: replied 12 months ago.

I will continue to wait as the answer is very important to me.

Expert:  Lindie-mod replied 12 months ago.

Hello,

Thank you, XXXXX XXXXX continue to look for a professional to assist you. Please let me know if I can be of any further assistance while you wait.

Best,

Lindie

Customer: replied 12 months ago.

I will wait.

Expert:  TaxVince replied 12 months ago.
Hi John

Thanks for posting the question.

Whilst i sympathise with you on your concerns about the alleged change of terms by Barclays on the original mortgage agreement and putting unreasonable conditions on the agreements, i can only assist you with regards XXXXX XXXXX tax implications if such terms are implimented. With regards XXXXX XXXXX you need to deal with Barclays going forward, I would suggest to get a legal expert to review the mortgage terms/proposed changes and advise you on the action points.

With regards XXXXX XXXXX implications of transferring ownership of the property to wife- i have listed the details below:
1. Income tax implications
Currently you may be splitting the rental income: 50/50. However should you transfer 100% of the property to spouse, it means all the rental income will be taxable on your spouse. It may not make much different if both of you are high rate tax payers.

2. Capital gains tax
There is no immediate capital gains tax implications on transfer of property between spouses. Capital Tax implications only the property is sold to a third party as shown below.

Capital gains tax allowances
If you were to sell the property whilst both of you are joint owners you both get capital gains tax allowances of £10,900. However if you are to transfer the ownership to spouse, then only the spouse gets capital gains allowance on eventual sale of the property.

Capital gains tax - letting relief

Since you are renting out your previous main residence there is the added benefit of being able to claim up to £40,000 letting relief each (total of £80,000 for both of you). However should you transfer owership to spouse then you loose out on your part of the letting relief of £40,000. The letting relief effectively reduces the capital gains on the property by £80,000 if both of you own the property.

3. Inheritance tax implications.
If co-owners hold property as joint tenants, the property will pass automatically to the survivor in the event of one of them dying. If co-owners hold property as tenants in common, each of them owns a share of the property. On death, their respective shares will pass under the terms of their Wills, or by the rules of intestacy. Separately owned assets can be passed to a spouse but they will eat into the Inheritance Tax nil rate band then in force (currently £325k).Therefore the way the property is held has significant inheritance tax implications.

Hope this helps. If you have any further questions please let me know before rating.
TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 961
Experience: Chartered Accountant >20 years + Qualified IFA
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