I agree with Tim that there is a conflict here between the SDLT and Income tax position. It will depend on the exact scenario, but it seems highly unlikely that the husband would be able to justify deducting 50% of the mortgage interest against 5% of the rental income. Equally, if the wife is in practice paying 95% of the interest it might be argued that, without a transfer of obligation that would trigger an SDLT charge, 45% of the interest is not “wholly and exclusively” incurred for her personal rental business - but rather a gift to her husband to meet his liabilities. I have not considered this fully, and the facts may not justify the extra complication and costs - but could constituting a formal partnership or LLP assist?.
I accept that it may not be uncommon for the lender not to be informed, but surely the key thing is to check the precise obligations and advise the clients on the potential implications - however remote they may be.
Phil Moss
Lubbock Fine