If you own a buy-to-let property with your spouse, a Deed of Assignment could significantly reduce your tax bill. This legal document allows you to transfer beneficial interest in a property without changing the names on the title deeds. Here’s what to keep in mind.
What Is a Deed of Assignment?
A Deed of Assignment for UK property transfers beneficial interest (also called equitable interest) from one person to another. Crucially, the legal ownership at the Land Registry remains unchanged – only who benefits financially from the property changes.
The names on the title deeds stay the same, but you’re altering who receives the rental income and what share each person gets when the property sells. You can assign anywhere from 1% to 100% of your beneficial interest, giving you complete flexibility.
Who Can Use One?
Deeds of Assignment are specifically for spouses and civil partners. If you’re married or in a civil partnership, this is the appropriate document for sharing property income tax-efficiently.
If you’re unmarried partners, family members, or friends buying together, you’ll need a Deed of Trust instead. This provides better protection for each person’s individual interest if relationships break down. For married couples, the family courts can override a Deed of Assignment during divorce proceedings to achieve a fair settlement.
Common Scenarios
Tax Rate Balancing: Suppose you’re a higher-rate taxpayer earning £60,000, whilst your spouse has little or no income. You jointly own a buy-to-let generating £15,000 annual rental income. Without a Deed of Assignment, you’d each pay tax on £7,500. By assigning your share to your spouse, all rental income is taxed at their lower rate – potentially saving £1,500 annually.
Capital Gains Tax Planning: If you’re selling a second property with a £30,000 gain, assigning 50% beneficial interest to your spouse before sale means you each use your £3,000 Capital Gains Tax allowance, increasing the tax-free total to £6,000.
Essential Requirements
Before creating a Deed of Assignment, you must:
- Be registered at the Land Registry: You can’t assign beneficial interest until you’re officially registered as the legal owner.
- Own as Tenants in Common: If you’re Joint Tenants (owning 100% jointly), you must first sever the joint tenancy to create divisible shares. Your solicitor can handle this straightforward process.
- Check your mortgage: Many lenders require permission before you assign beneficial interest. Some may insist you remortgage, involving additional costs. Always review your mortgage agreement first.
- Review restrictions: For leasehold properties, check that the lease doesn’t prohibit assignment. Also, verify there are no other legal charges preventing transfer.
The Stamp Duty Land Tax Trap
Here’s the critical pitfall: if there’s a mortgage, assigning beneficial interest can trigger Stamp Duty Land Tax (SDLT).
SDLT is charged on “consideration” – including any existing mortgage debt the Assignee assumes responsibility for. For example, with a £300,000 property and a £250,000 mortgage, assigning 50% beneficial interest means consideration of £125,000 (50% of the mortgage). This could trigger substantial SDLT, potentially wiping out any tax savings.
You avoid SDLT when: there’s no mortgage, or the deed specifies that whilst beneficial interest transfers, the original borrower(s) remain solely responsible for the mortgage debt. However, some lenders won’t accept this arrangement.
You Must Tell HMRC
If changing beneficial ownership for tax purposes, you must notify HMRC using Form 17. HMRC assumes married couples and civil partners split income and gains equally (50/50) by default. To be taxed on actual ownership shares, you must declare this.
Form 17 requires:
- Confirmation you’re married or in a civil partnership
- Each person’s beneficial interest percentage
- Evidence of unequal interests (your Deed of Assignment)
- Confirmation that the split applies to both income and capital gains
Important: You cannot have different percentages for income and capital gains – the split must be identical for both.
What Happens After Signing?
Once executed, the Deed creates a legally binding agreement about beneficial ownership.
When you sell, proceeds are divided according to the Deed of Assignment percentages, not the names on the title. If you’ve assigned 80% to your spouse, they receive 80% of the net proceeds, regardless of how the names appear on the deeds.
The same applies to rental income. Once the Deed is executed and Form 17 filed, all rental income is allocated according to the new beneficial ownership percentages for tax purposes.
Do You Need a Solicitor?
Yes, professional advice is essential. The interaction between income tax, Capital Gains Tax, SDLT, and Inheritance Tax is complex. A solicitor will:
- Review mortgage terms and liaise with your lender
- Draft the deed correctly to achieve your objectives
- Help complete Form 17 properly
- Ensure you understand what you’re agreeing to
Costs to Consider
Factor in solicitor’s fees (typically £275-£400 plus VAT), potential SDLT (possibly thousands if there’s a mortgage), remortgaging costs if required, and severing joint tenancy fees (£260-£300 plus VAT if needed). Compare these one-off costs against annual tax savings to determine your payback period.
Is It Right for You?
A Deed of Assignment works best when you’re married or in a civil partnership, there’s a significant income tax rate difference between you, the property has no or minimal mortgage, your lender permits assignment, and tax savings clearly exceed costs.
It’s unsuitable if you’re unmarried, have a large mortgage triggering SDLT, your lender won’t permit assignment, or tax savings are marginal.
The Bottom Line
Deeds of Assignment can save married couples and civil partners thousands in tax annually. However, the mortgage-SDLT trap catches many who rush in without advice. Get professional guidance early to calculate genuine savings, identify SDLT liability, and ensure everything is structured correctly. With proper advice, a Deed of Assignment could be one of your most tax-efficient property decisions.