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Freeholder or leaseholder

Mr A, Mrs A, & Mrs B bought a house

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Mr & Mrs A own a leasehold property that they rent out.  Mr A currently shows all the income on his tax return as he and Mrs B are named on the freehold as owners (named on the freehold, part of the freehold, I'm not sure of the correct term to use) and Mrs B doesn't see it as her property.  Mr A & Mrs B receive a joint annual dividend from the freehold co each year. Mr & Mrs A have a joint mortgage on the property.

For tax return purposes, who owns this house and who should be declaring the rental income?

Thanks 

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Lisa Thomas
By Insolvency Practitioner
20th Jan 2021 13:52

Mrs B owns the freehold with Mr A so she owns half of it (assuming 50:50 ownership) so presumably her income is limited to 50% of the ground rent?

Mr and Mrs A then own the leasehold, presumably in equal 50:50 partnership so the rental income from the leasehold is joint income. 50% Mr A and 50% Mrs A.

So Mrs B's income is the 50% ground rent only
Mrs A's income is 50% of the leasehold rental income
Mr A's income is 50% of the ground rent income from the freehold and 50% of the leasehold rental income.

I think...?!

Except that you have mentioned a freehold company... This makes no sense if Mrs b and Mr A own the freehold personally...?

Thanks (1)
Replying to Insolvency Practitioner:
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By BudgetB
20th Jan 2021 14:17

Sorry - it doesn't help that I am confused about the freehold situation!

I agree, I think that the leaseholders are the landlords for the purposes of the rental and as they are married should be declaring 50% each.

The freehold situation is more unclear, possibly because I just can't get my head round it. The freehold is owned by Co F, let's call them. Mr A & Mrs B, along with a bunch of other people relating to all the other properties on the land, are in some way shareholders (?) of Co F, hence receiving the dividends. They don't directly receive any ground rent, and Mr & Mrs A indeed pay ground rent on the property to Co F.
If you do a title search on the Land Registry, the leasehold is in the same of Mr & Mrs A and the freehold is in the name of Co F and naming everyone else.
Not sure if that helps to clarify or confuse things further!!

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Replying to BudgetB:
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By Paul Crowley
20th Jan 2021 14:06

That should have been in the question
The company is the freeholder and should be paying the tax on its income
Company MAY pay dividends to its shareholders

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Replying to Paul Crowley:
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By BudgetB
20th Jan 2021 14:16

Apologies. For my own understanding, how/why are Mr A & Mrs B shareholders of Co F, and why do Mr & Mrs A say that the property is owned by Mr A & Mrs B when I can't see anything that suggests that it is?

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Replying to BudgetB:
Lisa Thomas
By Insolvency Practitioner
20th Jan 2021 14:18

You have got confused in your original post.

The Company deals with its own income
Mrs A's income is 50% of the leasehold rental income plus any dividends from Company F
Mr A's income is 50% of the leasehold rental income plus any dividends from Company F.

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Replying to Insolvency Practitioner:
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By BudgetB
20th Jan 2021 14:18

Mr & Mrs A pay ground rent. Mrs A doesn't receive any dividend income, only Mr A & Mrs B

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Replying to BudgetB:
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By Paul Crowley
20th Jan 2021 14:23

Get the shareholder register up to date is the answer
This appears to be a daft arrangement to be set up

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Replying to Paul Crowley:
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By BudgetB
20th Jan 2021 14:26

Paul Crowley wrote:

Get the shareholder register up to date is the answer
This appears to be a daft arrangement to be set up

I've never come across it before. It's common that there's a freehold company who are completely separate and collect the ground rent, and I do the tax return for the rental for the leaseholders. This intermingling of the two has completely thrown me!

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Replying to BudgetB:
JCACE
By jcace
20th Jan 2021 20:02

From the information you have provided it would appear that:
Mr & Mrs A pay ground rent to CoF.
CoF deals with its income and pays out a dividend to the shareholders.
As has been stated, rental income is receivable by Mr & Mrs A and declared 50:50 unless they have the necessary paperwork in place to declare otherwise. The ground rent they pay to CoF should be an allowable expense against their rental income.
Mr A also receives dividends from CoF.
Mrs B also receives dividends from CoF,

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By Paul Crowley
20th Jan 2021 13:49

Far too confused to follow

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Replying to Paul Crowley:
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By BudgetB
20th Jan 2021 13:52

It was confusing to try and explain!

Thanks (1)
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By Tax Dragon
21st Jan 2021 06:43

Look up flat management companies. They're discussed in here often enough. There's some basic information here: https://www.gov.uk/set-up-property-management-company

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