Mother and son have purchased buy to let property.
Mother invests £50k and son takes mortgage for balance say £300k.
Son pays tax at 40%, mother at basic rate.
Are they allowed to split the rental income in any other proportion than that of the ownership ratio to reduce tax liability?
Son thinks they can, I am now wondering.
Son will claim his mortgage interest as allowable expense.
Thanks for any thoughts.
Replies (11)
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The key surely is to ensure the correct % of the profits end up with the correct person.
That is to say you are going to be a tricky one if the son takes 100% of the rental income and mum sees none.
If however you set it up such that mum takes the lions shares then there ought not be a problem for her to declare what is clearly her income, as hey look its been paid to her bank account.
Where I think you will fall flat is to decide after the event what is happening unless the income has all gone into a joint account and none been paid out.
If mum makes gifts to her son and a completely unconnected event then that is upto them.
Just seems odd to me after the fight of husband and wife re arctic systems that mum and son get a free allocation pass!
The 2004 case of Kings v. King allows one (unmarried) owner to "surrender" his/her income rights to another. Rather intriguingly, this was HMRC's argument and they won the case.
However, this was before the enactment of section 809AZA ITA 2007 which could change the situation.
Partnership
Under general law I thnk that you have a partnership, a partnership being defined as "Partnership is the relation which subsists between persons carrying on a business in common with a view of profit" (s1 Partnership Act 1890). If that is accepted that you have a partnership, albeit informal, you are then within s850 ITTOIA which allows you to allocate profits "in accordance with the firm's profit sharing arrangements" ie you are free to set the profit sharing ratios as you see fit.
As long as not spouses, no problem
Only spouses have to share rental profits according to percentage ownership ... unless this has been changed recently, which I doubt. Unmarried people can split beneficial ownership percentages as they see fit.
Regards KH
This has been answered before
See:
809AZA ITA 2007 should not apply if the current sharing position was the same as that from the start.