Deductible expenses following property transfer to spouse

* I asked this exact question at https://community.hmrc.gov.uk/customerforums/ifp/f39fb6a2-8801-ef11-a81c-6045bd0b5701 but I am unable to load that page without an error, so repeating it here - apologies * Hi, I am the sole owner of an unmortgaged buy-to-let property that I am looking to transfer ownership of - either legal or beneficial - to my spouse for tax purposes. My question relates to the expenses associated with the rental. It is a leasehold property which I, as legal owner, pay ground rent and service charges on, and it is let and managed through a lettings agency, with whom I alone currently have a contract. If I was to go down the beneficial ownership route, and I was to transfer 100% beneficial ownership of the property to my wife meaning she is entitled to 100% of the rental income, does she also assume responsibility for the aforementioned expenses, even though they are addressed to me? If not, particularly regarding the leasehold charges, what arrangements are necessary for HMRC to recognise these as expenses against her income since I would remain the sole legal leaseholder as far as the freeholder is concerned? Many thanks

Hi,

There are two separate questions here, the first being that the beneficial ownership of the property itself and of the income received from it must be in the same percentages so if you do transfer 100% of the ownership of the property to your wife then she would be entitled to claim any expenses incurred in the letting of the property regardless of which bank account these came out of.
 As regards the leasehold it apears clear that you intend to retain ownership of this yourself. In that case you would remain liable to tax on any income arising from this even though you may choose to give your wife that income so you would need to claim any expenses.

Thank you.

Hi, thanks for the brilliant reply. I take from it that if my wife has 100% beneficial ownership and hence takes 100% of the income then she is also responsible for 100% of the expenses, which is great news. I might have confused things regarding the leasehold, let me restate and see if that changes your second point, I own the flat as a leasehold (as per https://www.gov.uk/leasehold-property). This means that I pay ground rent and an annual service charge for maintenance of the building to the landlord/freeholder, a management company that owns the building. These are deductible expenses for me today. Can I take it from your earlier comment that these will be deductible for my wife when she is 100% beneficial owner, even though they will be addressed to me as I would remain the legal owner (leaseholder) of the flat? Thanks again

Hi,

As per your previous question and the response given surrounding beneficial ownership and leaseholds, referring to the second point made, when retaining legal ownership of a property, you would remain liable to tax on any income arising from the rental business, which in turn would mean you would need to claim any expenses.

In order for your wife to be eligible to claim both the rental income and expenses, you would need to transfer legal ownership to your wife. 

Thank you.

Hi, Thanks for the reply. This seems to contradict the first answer given by Admin 19. Quoting from the first reply: "if you do transfer 100% of the ownership of the property to your wife then she would be entitled to claim any expenses incurred in the letting of the property regardless of which bank account these came out of" And in the second reply I am told "when retaining legal ownership of a property, you would remain liable to tax on any income arising from the rental business". I am struggling to understand how both these statements can be true; would appreciate your help in getting this straight in my head. Many thanks

Hi,

This response was based on the ownership of the property and of the leasehold being two separate entities. You suggested you would be transfterring ownership of the property to your wife but retaning ownership of the leasehold yourself.  

Your wife would therefore be responsible for declaring the income from the letting business and claiming any expenses incurred in that.

You would be responsibe for declaring any income arising from the ownership of the leasehold, such as any annual fees charged and would be entitled to claim any expenses incurred in earning this income.

Thank you.

Hi - Thanks again for helping me understand this, it is much appreciated. I see now that the confusion arose with the understanding of the leasehold; the ownership IS the leasehold. In England, it means that I own the property but I don't own the land (details here: https://www.gov.uk/leasehold-property). The land is owned by a freeholder who charge leaseholders a service charge for upkeep of the building, and ground rent. There is no income for me associated with the leasehold, only expenses! Those expenses (service and ground rent) are incurred in the letting of the property, therefore based on previous answers will be claimable by my wife once she has 100% beneficial ownership of the property. Many thanks for getting me to this point.