Friends' joint property business

Friends' joint property business

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Second time of asking, please.

1. Terminally ill friend A signs over 50% shares in her properties to long standing friend B several years ago.
2. She, A, continued receiving rents and paying the mortgage and previous accountant continued allocating 100% of rental profits to A right through to 5 April 2013
3. Recipient, B, takes over 100% of mortgage and rental income in August 2013 and expects all profits or losses to be allocated to him; none appearing on A's tax return. B has a ton of rental losses brought forward, so will not pay tax on any profits.
4. A is unlikely to survive 2014. Both A and B wish me to do their returns.

Step 1. was done with lawyers; step 3 is an informal arrangement (done at time B became signatory for A at bank; no power of attorney). Generally, rental profits from joint ownership by friends is taxed in proportion to underlying ownership share. I'm ok with CGT and IHT implications of the original transfers, but concerned about step 3. I'd welcome thoughts on income tax and any IHT implications for the rental profits on properties 50% owned by A.

Many thanks, Jim

Replies (5)

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By JimH
05th Mar 2014 13:19

Should read as clients, not friends
... sorry about that - 2 individuals are friends with each other (not with me) One has approached me on behalf of both. My thoughts are that this income shifting doesn't work; joint property ownership is not usually a partnership. In which case please can I have thoughts on tax consequences for the property profits of one incurring all expenditure and receiving all income.

Thanks (0)
Replying to Michael C Feltham:
By JimH
05th Mar 2014 15:45

Crossed ...

Helen Crowley wrote:

http://www.taxationweb.co.uk/tax-articles/property-taxes/non-spouse-jointly-owned-rental-properties-part-2.html 

 

Thanks - I'd only just found, myself, together with the McLaughlin article.  As one who's been advising married couples to date, I appreciate your response.  Cheers.

Thanks (1)
avatar
By CathyB
05th Mar 2014 14:43

Jointly-owned property

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."

I'm not sure I agree that this is "occasional", but it is ok for them to agree a different profit split.

Thanks (1)
By JimH
05th Mar 2014 15:42

Thanks for reply ...

Cathy.  It helped.  And I've taken comfort from Mark McLaughlin and the advice about a) documenting properly in advance of the tax year b) making sure agreed shares are actually paid into bank accounts.  

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