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Disclosure under let property campaign question

Is HMRC Correct?

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In the process of making a disclosure under the let property campaign for a client. Land registry title deeds show property is owned by her and her son (this was at one point their family home), property has been let for last 4 years and all rental income paid to the mother. Before the property was let a declaration of trust was drawn up by a solicitor stating the son has no benefit or liability from the property. she wants to disclose all rental income as she has received the benefit, no rental income was paid to the son.

What is confusing me is on the disclosure form there is a question that asks is this property owned jointly, if you select yes it asks the percentage of rental income that you received from this property. I have spoken with someone at HMRC let property helpline who has advised that the income needs to be split 50/50 regardless of beneficial ownership. I have tried to explain the above to the women on the phone however she is adamant that it needs to be split 50/50 even if the mother received all the rental income and had an agreement in place, otherwise the disclosure will be rejected as it is 'incomplete'. 

Any advice would be much appreciated?   

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11th Feb 2019 16:02

It sounds like there is a trust in place for which the son does not benefit. Whilst you may wish to examine the situation carefully to ensure what is in the trust is followed, it sounds to me very much like this is the mother's income and you have been given duff information.

We deal quite regularly with this department and they don't seem to have much depth of understanding.

I did a similar one, ticked 50:50 & put 100% of the income in as it was all due. The lack of 'white space' on these often means you need to put in a separate letter.

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By mumpin
to ireallyshouldknowthisbut
12th Feb 2019 09:47

How do you put in a letter when the whole process is online?
I did one recently where HMRC challenged our self-assessment of behaviour as reasonable.
Once they were aware of additional facts they accepted our offer but lack of white space meant that they opened and closed an additional case.

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11th Feb 2019 16:03

HMRC are wrong. The beneficial ownership determines the distribution of rental income, and the tax follows that.

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to SteLacca
11th Feb 2019 23:05

HMRC and you are wrong. Tax does not necessarily follow ownership percentages. The owners are free to choose.

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to thehaggis
12th Feb 2019 07:20

...although if capital and income interests differ, you might need to consider settlements rules.

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12th Feb 2019 05:48

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.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

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to Wanderer
12th Feb 2019 07:25

I've read that extract many times. What is the underlying reason for HMRC's statement?

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12th Feb 2019 09:28

The property is not 'jointly owned' because beneficial ownership is held entirely by the mother. As SteLacca says it is beneficial ownership which is relevant for tax purposes. The legal ownership (i.e. the details recorded at the Land Registry) is irrelevant.

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12th Feb 2019 15:05

Disclosure under let property campaign question.
Flagged for future reference

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