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Property Income Tax Joint Ownership

How to treat income tax on Person B when Person A is living in property

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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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Scooby
By gainsborough
11th Jan 2021 15:48

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.

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Psycho
By Wilson Philips
11th Jan 2021 16:02

I think the first question that needs to be asked is "Why?"

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Replying to Wilson Philips:
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By rs561
11th Jan 2021 16:27

Because without Person A contributing more towards the joint-mortgage, Person B would be subsidising Person A's exclusive use of the property.

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Replying to rs561:
Psycho
By Wilson Philips
11th Jan 2021 19:11

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.

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Replying to Wilson Philips:
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By Tax Dragon
12th Jan 2021 05:45

Would compensation for loss of rental income not be taxed the same as rental income?

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Scooby
By gainsborough
11th Jan 2021 17:37

...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?

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Replying to gainsborough:
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By rs561
11th Jan 2021 18:52

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.

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Replying to rs561:
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By Tax Dragon
12th Jan 2021 05:49

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.

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