Share this content
7

Partnerships and Property Income

Didn't find your answer?

Hi just after a bit of advice really in the grey area of partnerships and property trading.  I have a few clients that fall into this grey area that want to try and get out of the new rules regarding mortgage interest relief and form partnerships to possiblly later incorporate using incorporation relief.  Having trawled through the internet and revenue publications and the Ramsey case its clear that they have to be seen as trading to get this on the trading pages etc.  However if they don't meet the trading criteria can this still go down on the partnership return on the property pages and will they still be able to get incorpoartion relief?  Also can we then still split the income in ratio's beneficial to the clients tax brackets ie not 50/50?  Or do they still have to do a declaration of benefiical interests form?

Replies (7)

Please login or register to join the discussion.

By Tim Vane
01st Oct 2019 15:23

Is it a H&W? IMO HMRC are quite hot at spotting and stopping H&W property partnership claims (which they almost always dispute) so usually not worth the grief of trying.

Thanks (0)
Replying to Tim Vane:
avatar
By paullacey007
01st Oct 2019 15:38

Hi yes its is H&W. Reading through the endless grey matter though it appears there's a lot of confusion over this hence why I wondered if they could still get it on the property page rather than a trade. The husband is a higher rate payer whilst the wife has very little income and thus has a substantial lower rate band to use.

Thanks (0)
Replying to paullacey007:
RLI
By lionofludesch
01st Oct 2019 16:06

Depends on the numbers but it might be easier just to transfer the properties to her. She doesn't care whether she gets mortgage relief as a deduction or a tax reducer. In fact, she could be (marginally) better off with the tax reducer if her income is near the personal allowance.

Thanks (0)
avatar
By unearned luck
02nd Oct 2019 02:57

Establishing that property letting is trading is both impossible and unnecessary. The key criterion for incorporation relief, there being a general partnership or the incorporation of an LLP is 'business'. Do the clients have a business, albeit an investment business? The dividing line between investment and investment business may be hard to spot, the more so when brains are clouded with wishful thinking.

My question is: how would you 'undo' the arrangement if it becomes fiscally unattractive to have a residential property letting business inside a ltd company? There is no reverse gear to incorporation relief.

Thanks (0)
Replying to unearned luck:
avatar
By Tax Dragon
02nd Oct 2019 06:49

Agreed. This incorporation malarkey is something of a one trick pony. The adverts sell it, based solely on the interest restriction.

However the advisor should not be duped by adverts. Even if it was possible to incorporate in every case (and we may end up there, though, contrary to what Justin asserts, we're not there yet), it would be anything but appropriate in (made up statistic alert) over 50% of those cases. [Using that made up statistic for an early morning pre coffee tax joke that I reserve the right to edit out of the broadcast... Put in tax terminology, incorporation is wholly or mainly inappropriate.]

Thanks (0)
avatar
By Montrose
07th Oct 2019 11:30

Just be aware that property partnership income is ringfenced, so that losses cannot be set off against any other income,even personal property income of the partners [ITTOIA s859(2)(b)]

Thanks (0)
avatar
By Montrose
07th Oct 2019 11:30

Just be aware that property partnership income is ringfenced, so that losses cannot be set off against any other income,even personal property income of the partners [ITTOIA s859(2)(b)]

Thanks (0)
Share this content