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Student rental income

I have a (new) client who bought a property jointly with another unrelated person for the purpose of housing their children (A&B) who were going to University.

The house was big enough for A&B plus three other students.

The three other students paid rent each month and the parents of A&B also paid rent on behalf of their two children.

Is the rental income paid by A&B's parents taxable?

It would seem strange if I bought a house for my child, paid rent into a rental bank account each month and had to be taxed on that money. However if I bought the house jointly with a friend then the money I lodged into the bank would be income for my friend.

So do I treat 50% of A&B's rental as taxable income?


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13th Jan 2012 15:54


It's an accepted principle of UK tax law that "a man cannot trade with himself". See CTM40955.  The actual quote is from a statement made by a then QC in the case of Styles v New York Life Insurance Co 2TC460, the earliest reference in tax cases to it being in the judgement in CIR v Cornish Mutual Assurance Co 12TC841.

To the extent that that your client's share of the joint rental income includes money he himself has paid it should be disregarded.  His joint owner is obviously taxable on his entire share.

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13th Jan 2012 15:59

Thank you, does it make any difference that the rent paid by the parent was on behalf of this child.

In other words if his son or daughter (I'm not sure which) had paid the rent from their own bank account to the joint rental account then it would have been taxable on both the parent and the other owner?


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13th Jan 2012 16:05


Now that I think about it, there's a little caveat on my previous response, I suppose.  If the son and daughter have entered into leases in their own names with the joint owners, then the parent is effectively gifting them the money to pay their rent and it would then be taxable, I think.

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13th Jan 2012 16:07


OK now you're at the "back and forth" stage I've been at for the last while!!



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13th Jan 2012 18:57

I am at a complete loss why the parents pay any rent whivh they are taxed on before they pay it and then taxed again on any rental profit. Regards Peter

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By blok
13th Jan 2012 19:33

Pete. Me too.
I thought they owned the property?

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13th Jan 2012 20:20

Indeed ...

My (new) client thought he didn't need an Accountant up until now but clearly he did!!

I can't rewrite history but I can make sure things are done differently going forward. 


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By campbed
13th Jan 2012 23:44

Best structure

It always seems to me that the best  structure for student housing arrangement is to buy the home in the names of university student child(ren) and for the parents to lend them the money on an interest-free  secured mortgage. In that way any rental income from other students goes to child(ren) who will also get PPR relief on any capital gain on a future sale as well as effecting an IHT-free transfer of that gain. 

In the structure as is, there is no requirement for parents to charge rent to A&B. Parents are making gifts (dispositions exempt from IHT) for maintenance of child in full-time education.

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