Profit sharing in property letting business

Profit sharing in property letting business

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A and B jointly and equally own some commercial property let to various traders. Profits have historically been shared equally to reflect the heritable ownership of the properties. They now wish to adjust the profit shares to reflect the fact that one handles the management of their portfolio, whilst the other merely enjoys the investment return. Can a prior charge salary be allocated to the "manager" or must profit shares follow the heritable ownership? Would it be better therefore to pay a fee to a separate management company owned by the "manager" who is unlikely to attract higher rate tax?
derek brown

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By User deleted
28th Aug 2007 18:37

Unequal profit division
HMRC seem to be relaxed about an unequal division in these circumstances. The following is an extract from PIM 1030

"Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed."

These position would be different if A and B were spouses or civil partners.

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