A Declaration of Trust is a legal document that details the actual ownership shares held by each joint owner of real estate. Another name for it is a Deed of Trust. Renting out a joint house as a couple, whether married or in a civil partnership, is the most typical use case for one.
How does one use a Declaration of Trust? #
HMRC often assumes that a couple owns equal shares, or 50/50, of a property. Each will have to pay their portion of taxes and submit a self-assessment. However, you may inform HMRC that the money you made from renting out your jointly held home wasn’t divided evenly if you sign a Deed of Trust.
Does it really make a difference? #
If one of you makes a lot more money than the other, you (as a couple) may reduce your tax liability by using a Deed of Trust. This is how it really works.
- Komal is in a civil partnership with John.
- They invest half of the money in a buy-to-let home that they jointly purchase.
- The annual rent for the home is £20,000.
- HMRC will assume that the rental revenue gives each person a total of £10,000.
- Both Komal and John are required to submit a Self Assessment.
- However, because Komal makes £70,000 and John makes £30,000, the taxes they pay on this rental income would vary significantly.
- Komal pays £3,600, while John pays £1,800.
- If John received the rental income, it would be preferable (more tax-efficient) and the total tax payment would be reduced by £3,800.
- In order to do this, they both sign a Declaration of Trust and a Form 17 designating John as the only beneficiary of the rental income.
- They may undo the procedure when they sell the house, allowing them to each claim their £3,000 capital gains tax exemption.
Is this exclusive to couples who are married? #
Not only are Declarations of Trust appropriate for couples investing equally in real estate.
If you purchase real estate with pals, you may also make use of them. It’s not necessary for the divide to be 50/50. You may use them for any desired split, such as 70% – 20% – 10% when working with three individuals.
