Declaration of trust - Income tax and capital gains

Apologies, as I'm aware this topic has been covered numerous times. I'm struggling to get a clear understanding of what will be required in our situation. I currently own a rental property in my name alone. I am planning to produce a declaration of trust to give my unmarried, cohabiting, unemployed partner a 90% share of the property, to take advantage of her tax free allowance. Please could you confirm the below .. 1. Once the declaration of trust is produced, does it needs to be registered with HMRC's trust registration service? 2. Do I need to complete Form 17 and/or provide a copy of the declaration of trust? 3. Going forward, will income tax need to be paid via the trust? or will myself and my partner declare our relative income as part of self assessment? 4. If we choose to use the £1,000 property allowance, can we both claim this individually, for a total £2,000 allowance? 5. If we choose to declare expenses instead of using the £1,000 property allowance, are the expenses split according to our relative share of the property? and would this mean that neither of us could use the £1,000 property allowance? 6. The property was only purchased in 2022 and I'm confident that my allowable expenses far outweigh any increase in the property value. Will the declaration of trust require me to do anything in terms of declaring capital gains? 7. If the property is sold with the declaration of trust in place, is capital gains calculated for both myself and my partner, according to our relative split, based on the initial purchase price of the property? Many thanks

Hi,

1. No, it is not that type of trust.
2. No, form 17 can only be used if you are married or in a civil partnership.
3. If you want to split the property income between you and your partner, you will need to transfer the legal ownership first. The share that you declare the rental property in does not have to match the actual ownership share. PIM1030 does allow the share of the rental profits to be split differently from the share of the actual ownership. "Where there is no partnership the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let.  But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property.  The share for tax purposes must be the same as the share actually agreed”.  
4. Yes, it is an allowance due to each individual, but you cannot claim your partners £1,000 if they have not used all or some of it.
5. Yes, if your choose that method, expenses must match your relative share of the property.
6. Yes, if you own a property jointly with others you are each eligible for the £1,000 allowance against your own share of the gross rental income.  You cannot however, deduct more than the amount of your rental income and create a loss.
7. Capital gains is based on the share that you legally own. Any rental expenses cannot be deducted as an expense for capital gains. Capital improvements to your property such as building an extension onto the rented property can be claimed as a deduction.

  Thank you.

Thank you for the information. Just to confirm on answer number 3. Does this mean that I could, for example, transfer 5% ownership of the property to my partner, but specify that her share of profit and loss is 90%? Making her responsible for 90% of the income and myself for 10%? Would both the ownership share and profit / loss share just need to be detailed as part of a declaration of trust? Thanks again

I've spoken with several accountants today who have advised that I should be able to assign a proportion of beneficial ownership, without transferring legal ownership. They have suggested I produce a deed of assignment, rather than a declaration of trust. Please can you confirm whether a deed of assignment is acceptable for tax purposes, and will allow me to transfer beneficial ownership, without transferring legal ownership?

Hi,

The need for registering via a declaration of trust with HMRC depends on its specific terms and the parties involved. In particular, registration with HMRC is necessary when legal and beneficial ownership differ as in your case,

Legal ownership refers to the person or entity whose name is officially registered on the property title deed. They have the legal right to control, use, and sell the property.

Beneficial ownership refers to the individual or individuals who enjoy the benefits of ownership, such as receiving rental income, even though their name may not be on the title deed.

In short, you need a declaration of trust.

Thank you.

Hi Tom Evans,
The share that you declare the rental property in does not have to match the actual ownership share so your understanding appears correct.
For further info please refer to Property Income Manual PIM1030 - Introduction: jointly owned property & partnerships
Thank you.