Splitting income from property rental or not?

Splitting income from property rental or not?

Didn't find your answer?

Hi, I have a property with my son that is rented out, there's not a lot of profit on it, just over the £3000 mark.

I am in the higher tax bracket whilst my son is in the lower.  We own the property jointly, 50/50, both names on deeds and mortgage.  Reading into the HMRC manual PIM030 "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" does this mean I can split the profit, say 80/20 in favour of my son (providing he is paid 80% of the profits of course)?

Thanks

Replies (9)

Please login or register to join the discussion.

avatar
By cohen
23rd Jan 2015 18:06

Provided that is how the profits are actually split (i.e. paid out), then yes.

Might be worth ensuring that their agreement to the split is evidenced.

 

Thanks (0)
Replying to ASF:
avatar
By HeavyMetalMike
23rd Jan 2015 20:04

I don't think that is true, Cohen.
Whatever happened to splitting income only in proportion to actual capital entitlement?

Thanks (0)
Replying to lionofludesch:
avatar
By cohen
23rd Jan 2015 20:19

I would say that capital entitlement is just that - their entitlement to the capital, not necessarily any profit derived therefrom.

You can have a differing beneficial interest to the profit than to the income.

As I mentioned, tis should usually be evidenced in some way, in case of queries.

 

 

Thanks (0)
avatar
By vodkaqueen
25th Jan 2015 13:46

Sorry for the late response, have been sick for a couple of days.  What would constitute as evidence?  Would a payment from the bank the 80% of the profit to my son suffice or would a more formal agreement need to be drawn up?

Thanks (0)
avatar
By MBK
25th Jan 2015 13:53

The evidence you need ...

..... is a simple set of accounts with a balance sheet. In the balance sheet each of you and your son will have a capital account representing your investment in the property venture. Each year that capital account will change by (a) the share of profit for the year being added to iy and (b) the amount of cash you draw from the venture.

So long as the capital accounts show (a) above ion the 80:20 ratio and are approved by both of you by way of a simple approval statement you are home and hosed.

 

 

Thanks (0)
avatar
By vodkaqueen
25th Jan 2015 18:14

That's great MBK, thank you

That's great, thank you very much for taking the time to answer at this time of year, I know how busy you all must be.

Thanks (0)
avatar
By King_Maker
26th Jan 2015 09:35

Although a set accounts should suffice, I would still recommend some other paperwork to confirm the different income shares.

Thanks (0)
avatar
By Justin Bryant
26th Jan 2015 10:21

NB

This planning only works if the different income/capital profit splits are agreed from the outset. If not and there is a change to the income spIit you are caught by s809AZA ITA 2007 (unless you transfer a corresponding capital share too).

Thanks (0)
avatar
By vodkaqueen
26th Jan 2015 14:53

This is the first year it has been rented out, so no problem with any changes.  What other paperwork would you recommend King-Maker? I want to make sure this is kept right in case of a future inspection.  Thanks

Thanks (0)