My wife and I will be renting our property for 2.5 years. We’ll be living abroad as she’s been posted via the Foreign Office in Africa.
We’re married and I believe we’re classed as joint tenants in terms of the ownership of the house.
I’ll be unemployed for some time, whilst my wife will be earning more than £50k meaning she’ll be paying the 40% tax bracket.
The expected rental income per year is just over £50k. I understand that we can only recognise this income 50/50, but would it make sense to put this on an LTD and have me as the only person claiming dividends to lower the tax burden?
I’m not sure what my employment situation will be in the next 2.5 years, hopefully I’ll manage to get some remote work, but there’s also the possibility of me being out of a job for that lenght.
There are lots of factors to consider in this. If you are talking about transferring a property that you personally own to a limited company, there is likely to be stamp duty which is normally based on the full market value rather than what you initially paid for it. There may be capital gains tax too, depending on the property price. Additionally, if you have/need a mortgage, the current mortgage company may not want to transfer this to a limited company, and the interest rates offered to companies are normally higher. Taking out your rental income will also be subect to taxes after a certain amount since you’d have to take this out as dividends. These costs may outweigh the tax benefits. There are a lot of dependencies, so I would speak to a tax advisor in any case.
Do you have a mortgage? It is possible to change ownership so you own more, eg 99% to you with your wife having 1%. You would then be able to have 99% of income in your name and therefore taxed at your lower rates of tax.
Stamp duty is based on consideration, ie how much you pay on transfer of ownership, if no mortgage the consideration would be nil and therefore no stamp duty.
Transfers between spouses are exempt for capital gains tax.
If you dont have a mortgage this would likely be most tax efficient, assuming wife is happy to do that. If you do have a mortgage then its more complicated so you should definitely speak to tax adviser in that case.
If you anticipate getting a job there at some time then I wouldnt suggest any ownership changes as they will cost more than the income tax.
I would recommend you get a fully managed service from a reputable local letting agent as you wont be on hand to sort out any problems and I presume youre not familiar with the 160+ laws governing the industry.
You should also be aware that it can take up to a year to evict a tenant, so you should not count on it being available on your return.
If you own the property as tenants in common ( i think thats the term) you can get a solicitor to prepare a deed which alters the share. Our personally owned properties are 75% to my wife 25% to me.
Transferring properties to a ltd company would likely be very complex and expensive so not an option for 2.5 years. It would have to be reversed when you return too. Almost certainly cheaper to take the hit on the income tax. The deed is a simpler way.