A light property income tax question!
- Person A and Person B own a property 50/50 via a tenant in common arrangement
- Person A and Person B are not related or partners in any way
- Mortgage is in both Person A and Person B's name
- Service charge / ground rent payable
- Person A lives in property alone as their primary residence
- Person B lives in another property
If Person A is looking to pay 100% of the mortgage for a year, how is this treated on Person B's tax return? There is no rental income as such, but Person B is benefitting in the long term because Person A's contribution is paying off a mortgage on a property Person A has 50% ownership of.
Does Person A's contribution for half the mortgage need to be carved out so that Person B pays income tax on this? Or can 100% of the profit/loss be attributed to Person A so that no profit is made and no income tax is payable (as no rent is being received from outside Person A and Person B)?
Thoughts appreciated!
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Replies (8)
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I'm viewing this as the same as person A paying person B a rent equal to half of the mortgage, which B would declare as rental income, then claim the appropriate tax reducer for their share of mortgage interest.
There may be other options to look at - e.g. A agreeing to formally take on 100% of the mortgage, but this would have stamp duty and other implications.
Because without Person A contributing more towards the joint-mortgage, Person B would be subsidising Person A's exclusive use of the property.
But why for just one year? It does sound as though the objective is as much about compensating B for loss of rental income. However, that doesn’t necessarily make it rent.
...and the second question that needs to be asked is have they considered the CGT position? Person A being likely to qualify for PPR relief on their half share of the eventual gain, but Person B unlikely to.
Additionally, has Person B ever lived in the property? Do they own the property they currently live in? Have any PPR elections being made?
Person A qualifies for PPR.
Person B does not on the basis that they have lived abroad for >3 years (but still UK resident).
But to be honest this question is mainly re income tax.
Remember that, if you live abroad for 6 months or more per year, HMRC class you as a non-resident landlord - even if you're a UK resident for tax purposes.
