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Hand in hand
Assigning partial beneficial interest in property to wife.
I am considering renting out my house, which I own with a residency mortgage. Its current value is £260,000 and I have a mortgage balance of £173,000.
I want to assign 85% of my share of the beneficial interest to my wife for tax purposes using a deed of assignment. Once the deed of assignment is complete, I understand that I can then use a form 17 to share property income in the beneficial split agreed in the deed, in accordance with HMRC’s guidance on its website at tinyurl.com/hy4zj64:
‘If you jointly own property with your spouse or civil partner and want to change the split of income from it for tax purposes use income tax form 17.’
I checked with the mortgage lender and they do not have a problem with assigning the beneficial ownership to my wife, however it might be difficult to put her on the land registry.
I have the following questions for readers:
- Would assigning the beneficial interest to my wife mean that we jointly own the house and therefore we can submit the form 17?
- Does my wife’s name need to be on the land registry for this purpose?
- Is there any stamp duty land tax liability if we just do a deed of assignment?
- Does my wife as a first-time buyer need to pay stamp duty land tax or land transaction tax on the full price of the house or just the new owner’s share of the existing mortgage/loan debt?
- Would this cause any issue for any capital gains tax on the property in the future?
I would appreciate any help from readers.
Query 19,407– Hubby.
Legacy
Terminating a trust and distributing proceeds.
On the death of a relative my client (now in his 70s) received by way of legacy a life interest in a residential let property with remainder to his step-daughter.
Both he and his step-daughter now wish to realise their respective financial interest by selling the property and dividing the proceeds accordingly.
Could Taxation readers suggest what is the optimal way to terminate the trust to achieve this and minimise the resultant tax costs?
Query 19,408– Trepidy.
Professional obligations
Reporting incorrect returns of a previous adviser.
I have recently taken over a client from a smaller general practice firm of accountants. On reviewing her returns for the past few years I have seen that her previous advisers have made a mistake in the way that they have allowed double tax relief. Relief has been claimed in full on dividends from countries where the double tax treaty only permits relief of 15%. This is similar to the situation in Cooke(TC6239) (tinyurl.com/y6raogpd).
There is no doubt that the returns are incorrect – this is obvious from the face of the returns themselves and no additional information was required to establish this. I am considering my professional obligations here and would appreciate readers’ views.
In the normal course of events it is clear what I have to do when there is an error. I need to inform my client of the error, ask her for permission to report it to HMRC and if she does not consent then I must consider ceasing to act for her.
That was my first thought here but the Cooke case has given me pause for thought. In that case HMRC raised discovery assessments for the closed years to bring the underpayment into charge, but the First-tier Tribunal decided that HMRC could not make a discovery assessment because everything was shown on the face of the return and therefore an officer should have been aware of the insufficiency before the enquiry time limit had expired. It also held that the adviser had not been careless.
The same logic would I am sure apply to my client, so that HMRC would not be able to raise a discovery assessment to capture the underpaid tax.
If HMRC cannot assess the tax do I still have an obligation to disclose the error? Any letter would presumably have to point out that HMRC did not have the power to assess. I have explained the situation to my client who has said, understandably, that if the tax is not assessable why should she incur time and expense in notifying the Revenue, particularly as she thinks, probably rightly, that such a notification would only result in protracted and expensive correspondence.
I think that the situation is different for the year for which the enquiry window has not closed and I have a clear obligation to advise the client to submit a revised return.
What do readers think?
Query 19,409– Overtaxed.
Freelancer
VAT on office extension to private house.
I have a client who is looking to put an extension on his private house, to be used as an office for his VAT registered trading business as a sole trader. He is a freelance writer.
The client has asked if he can claim input tax on the cost of the extension. I have done some research and some commentators say that 100% can be claimed, but others say that he can only claim on the furniture and fittings. As a separate point, would the position be different if my client traded as a limited company, or would this be fine as long as the builder invoiced the company and the company paid the bill?
Readers’ thoughts would be welcome.
Query 19,410– Del Boy.
