Q: Can I allocate the income from my investment property to my spouse so it is taxed at a lower rate?
A. Due to the infinity of legislation that applies to land transactions and gifts, various tax implications are of concern.
Where only an income stream is transmitted and the transferor keep an interest in the capital value of the property generating the income, the income is treated for income tax purposes of the income of the transferor under the settlement legislation at ITTOIA 2005 s.624.
To impact a transfer of the income stream and accomplish the client’s objective, the transferor must also transfer a proportionate capital interest. To transfer 50% of the income stream effectively, a 50% interest in the capital value of the property also must be transmitted.
For capital gains tax purposes, capital assets are transferred between spouses at nil gain or loss. The deemed consideration would secure a net gain of £0 after accounting for enhancement expenditure, costs to transfer, etc. There are exclusions to this rule where the spouses are not living together, so do not assume tax neutrality will apply.