Rental income?

Rental income?

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I would be grateful for any advice regarding the tax implications of the following. My client is the father - but we will advise the sons if necessary.

Father has leant his 2 sons £400k to purchase a flat near London by re-mortgaging a property he owns. Its an interest only mortgage for 2 years.

The property is owned jointly by the 2 sons. One son and 3 friends will live in the flat and pay the father the 'monthly cost' of the flat - i.e. the interest on the mortgage & the service charge. The sons are not making any other repayment of the loan from their father.

The sons appear to be receiving rental income - but does this flow up to the father as an expense? Is there any 'get-out' of reporting this as it is a domestic arrangement with no view to make a profit? The contracts were only exchanged this week and we want to get things right from the start. The father is self-employed & has existing rental income on other properties & is comfortably in the middle of the 40% tax band.

Replies (2)

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By johngroganjga
21st Jan 2014 12:16

Why are the occupants of the flat paying "service charge" to the father?  The obligation to pay that must fall on the owners - i.e. his two sons.

It seems to me that the sums paid by the occupants of the house, including the joint owner, are all rental income in the hands of the joint owners.  Against this they can offset the interest arising on the loan from their father and the service charges they pay.  So the net amount taxable will be £Nil.

The father will have interest income on the loan to his sons, on which he will of course pay tax in the usual way. 

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By IslingtonAccountant
22nd Jan 2014 09:42

Thanks for the reply, that is the same conclusion I have come to. You are of course right that the service charge goes to the building owners/management company/whomever.

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