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!
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.
I think the first question that needs to be asked is "Why?"
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.
Would compensation for loss of rental income not be taxed the same as rental income?
...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.