Guest Blog: Declarations of Trust for Property and the Self-Assessment Tax Return

By Amanda Perrotton, legal partner at Bell Howley Perrotton

A Declaration of Trust is a legal document which sets out the financial arrangements between people who have an interest in a property.  The premise for the document is that it provides legal certainty surrounding property ownership and entitlement, which may vary from what is recorded at the Land Registry.

The deeds are drafted specifically for your requirements, contributions, mortgages, income, repairs, insurance and any indemnities.  You will also need advice about the reporting requirements for Income Tax, Capital Gains Tax and any reliefs and exemptions.

I am regularly instructed to draft declaration of trusts by private and commercial clients who believe that declaring their interest in this way will act as a magic wand for transferring income or gains, but clients must be very wary.  There are implications of transferring entitlements and interests as they can be triggering events for CGT and SDLT, if you don’t qualify for the reliefs.

Reporting income from property

The deadline for filing the 2020/21 self-assessment tax return online is 31 January 2022. If you received income from property, you may need to tell HMRC about it on your return. There are designated property income pages for providing details of your property income.

Income from property of £1,000 or less

The property income allowance, set at £1,000, means that you do not need to tell HMRC if you received income from property of £1,000 or less in 2020/21. However, if you have made a loss, you may want to complete the form so that you can benefit from the loss in the future.

If your property income is more than £1,000, but your expenses are less than £1,000, you can claim the allowance and deduct £1,000 when working out your profit rather than deducting your actual expenses.

Rent-a-room

If you rent out a furnished room in your own home, under the rent-a-room relief scheme you do not have to tell HMRC about the income if it is less than £7,500 (or if you share the income with other people, your share is less than £3,750). As with the property income allowance, you can deduct the relief rather than actual expenses when working out your profit if your rental income is more than the allowance.

Property income business

All let properties owned by the same person or persons in the UK, with the exception of furnished holiday lettings, comprise a property income business. Profits and losses are computed for the business as a whole, rather than on a property by property basis. This means you deduct total expenses from total rental income – there is no need to match the expenses to each individual property. The income and expenses are reported on the property income pages of your return (SA 105). Remember, if you let residential property, you cannot deduct interest and finance costs. Instead, relief is given by reducing your tax bill by 20% of your interest and finance costs. The interest and finance costs go in box 44, and if you have any finance costs unused from previous years, these are entered in box 45.